The Bank of Israel is expected to raise the interest rate by 0.5% in its next decision

| By Yonatan Katz and Leader Capital Markets economists

| JThatRATo: He moderatedandA Easy to useYelloA

The survey of trends in the business sector for October indicates a slight moderation in activity, but it is still a relatively high level of activity. The component of expectations for a change in activity in the next three months rose slightly to 4.03 points from 3.13 in September, but this is still a relatively low level compared to the previous three months (around 7 points).

The expectation of a change in export orders in industry decreased, but the component of orders in the domestic market increased. Expectations for a change in sales in the service industries have risen. There is some weakness in the outlook for employment change. Expectations for a change in exports in the information and communication sector (high tech) decreased slightly, but there is still an expectation of expansion in exports (positive net balance). expectations Continue to moderate To-2.9% A year ahead from– 2.99% a month ago and-3.14% a month agoSea.

| What about the shortage inAnd fabrics?

The industry and service sectors report an easing of the shortage of workers, but in the service sectors the strength of the limitation of the shortage of workers on the expansion of activity is still relatively high:

In conclusion, this important source regarding economic activity does not indicate a real moderation in activity, when the CBSA announcement indicates the moderating effect of the holiday period on the survey results.

If the Bank of Israel places emphasis on the moderation in expectations for future activity (and less on the current environment), a change in wording is expected from “continued robust activity” to wording such as “initial signs of moderation”. We expect an interest rate increase of 0.5% B-21 BNand Bamber, Subject to October inflation data and growththe bmultiON C.

| RThe B: Signs of moderation in inflationGod

• In October, in the USA the surprise was downward and increased by 0.4% (the expectation was 0.6%) and inflation by 0.3% (against the expectation of 0.5%). In total, inflation moderated to 7.7% from 8.2% (a year ago). Core inflation moderated to 6.3% from 6.6%.
• It is true that rental prices in renewable contracts continued to rise (by 0.6%), but slightly less than the previous month (0.8%), and than in July-August (0.7%). Food prices increased by 0.4%, a very moderate rate compared to the previous months.
• The prices of used vehicles decreased by 2.4%, the prices of clothing decreased by 0.7%, the prices of furniture (furniture and bedding) decreased by 1.2%, and the prices of education decreased by 0.9% (mainly a decrease of 5.9% in the prices of mobile phones). Health care prices fell by 0.6%, with medical insurance prices falling by 4%, a section that is expected to lead the index down in the coming year.
• The prices of goods excluding energy decreased by 0.4% in the October index. The prices of services rose by 0.5% (compared to 0.8% a month ago, due to the moderation in rental prices). Looking ahead, vehicle prices will continue to fall (according to the Manheim index), as well as medical insurance prices.
• The big missing is the rental prices, when according to the ads on the Internet (Zillow, ApartmentList) the moderation in rental prices is intensifying.

important to emphasize Because This is a girlVen of inflation regarding one month after the monthlyM. SInflationupward thrust. Anyway, Frd is expected toGodcost By only 0.5% in December, which is expected to indirectly affect a similar increase byby a bank Israel (in November).

| GandM AJN: An increase is expected significant BRecruiting the merchant B-2023

• In January-October it amounted to NIS 30.1 billion, and 0.5% in terms of GDP a year ago. This is a very positive year from a fiscal point of view, with a 17% increase in tax revenues and a 6% increase in government spending (excluding expenses due to the corona virus), a real increase of less than 2%.
• Assuming that the months of November-December amounted to a (mainly seasonal) deficit of NIS 16 billion, a surplus of NIS 14 billion is expected this year, or 0.8% in GDP terms. In the years before the corona virus, the deficit in the last two months of the year amounted to a similar amount (mainly due to a large deficit in December: budgetary utilization at the end of the year, after a small surplus in November).
• Until October, the treasury raised about 46 billion shekels (tradable and non-tradable), and it is expected to raise another 10 billion shekels in the last two months of the year.
• Revenues from the sale of land are expected in the amount of approximately NIS 12 billion (10 billion by October).
• Until October, the net funding from abroad (abroad raising minus fund redemption abroad) was negative (NIS 4.3 billion), but it is possible that the Treasury will raise abroad by the end of the year.
• This year, the Treasury is expected to use about 15 billion shekels from surplus mobilization from previous years, which reached 28 billion in 2020-2021.
• We appreciate thatin 2023 GodGiReon GodTkTzivi Arrive To-2%-25% GDP, due to an increase in expenses by the new government (budgetary demands + war on the cost of living + wage agreements) and a moderation in tax revenues, a trend that has already begun in recent months, as the Ministry of Finance notes in the announcement of the budget data. This means a deficit of about NIS 40 billion in 2023.

| MBninth first About 2023:

We built the deficit financing structure according to the following assumptions:

• The volume of land sales is slightly lower than in 2022: NIS 10 billion compared to NIS 12 billion due to contractors’ fears of a decrease in demand due to the rise in mortgage prices.
• Net positive financing from abroad is around NIS 4 billion. The Treasury is expected to slightly increase the fundraising abroad due to the lack of a source of intended issuances, as indicated by the Accountant General at the Ministry of Finance
• Use of about 5 billion in the surplus of the mobilization from previous years (use of the deposit)

According to the above assumptions, the treasury will need a net raising of approximately NIS 21 billion in the local market, or approximately NIS 88 billion in gross raising (the redemption of the fund is expected to reach NIS 67 billion). Therefore, in 2023 the treasury is expected to raise marketable bonds with an average volume of 7-7.5 billion per month, double from 2022.

It is important to emphasize that bond yields are more affected by the inflation environment (which is certainly expected to moderate in 2023) and the expected change in the Bank of Israel’s interest rate, the change in yields abroad, and the fiscal environment in general (to what extent the fiscal policy maintains fiscal responsibility).

At the same time, the volume of issuances relative to demand is also another influencing factor. In the background, the demand for tradable bonds from the direction of the pension funds is expected to be relatively small, when after the cancellation of the intended issuances, these bodies will prefer mainly to purchase shares and corporate bonds.

PDF Document: Weekly Macro Review by Leader Capital Markets Economists

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