Weekly report, May 11, 2026: Iran rejects ceasefire proposal; Israeli politics heats up, while markets focus on April CPI, the shekel, and the upcoming rate decision
Key developments and outlook:
- Iran rejected the U.S. proposal to end the war: Israel assassinated a senior Hezbollah commander in Beirut, while fighting in southern Lebanon and exchanges of fire in the Gulf region continue. A diplomatic settlement appears unlikely in the near term, with the most probable scenario remaining a prolonged U.S. naval blockade and a rising risk of another round of escalation.
- Israeli politics are heating up ahead of elections, likely to be held on their original date in October 2026: Recent polls published this week show the opposition bloc winning around 68-70 seats. However, without support from the Arab parties, the anti-Netanyahu bloc still struggles to secure a clear majority on its own.
- At the same time, Netanyahu is reportedly trying to postpone discussions on the highly sensitive ultra-Orthodox conscription law, which has become a growing source of tension both within the coalition and among parts of his voter base.
- The shekel continues to strengthen sharply: The shekel appreciated to around NIS 2.91 per dollar, completing an 8.6% appreciation since the beginning of the year. The move is mainly driven by institutional FX hedging activity, continued high-tech inflows, and a still-strong external position.
- Inflation is expected to spike temporarily in April: April’s CPI is expected to rise by around 1.1%-1.2%, mainly due to higher fuel prices, airfare prices, and seasonal effects. However, annual inflation is still expected to remain relatively moderate at around 1.9%.
- The Bank of Israel is still expected to keep rates unchanged: Despite market pricing for a more accommodative policy path, the Bank of Israel is expected to leave the policy rate unchanged at 4.0% in May and likely in July as well, given ongoing geopolitical uncertainty.
- Israeli swap rates declined sharply this week: IRS rates fell across maturities as markets revised downward expectations for future policy rates, partly reflecting the stronger shekel and lower short-term inflation expectations.
- Economic activity weakened sharply in March but recovered partially in April: Credit-card spending dropped by 11.9% during the war month, especially in services, although Bank of Israel data point to gradual recovery in April. Business-sector sentiment also improved after the ceasefire, but remains below pre-war levels
- The high-tech sector remains the main anchor of the Israeli economy: Although high-tech service exports weakened in January-February, the broader trend remains strong, with exports above $65 billion annually and startup fundraising continuing at relatively stable levels. These developments continue to support the shekel and Israel’s current-account surplus.
Several important Israeli macroeconomic indicators are scheduled for release this week:
Monday, May 11 – Consumer confidence index for April 2026
Tuesday, May 12 – Retail chain sales (redemption/sales) for January-March 2026
Wednesday, May 13 – Israel’s foreign trade data for April 2026, including imports and exports of goods
Thursday, May 14 – Housing transactions data for January-March 2026
Tuesday, May 19 – Inflation expectations from various sources
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