BOI likely to revise growth forecast upwards

ISRAEL - In Brief 05 Sep 2016 by Jonathan Katz
Highlights:Rate stability for September came as no surprise but BOI tone more hawkish.The monetary statement noted upward growth surprise in Q2.Labor market approaching full employment.Risk to achieving growth target no longer significant.Yet, forward guidance maintained with accommodative policy expected for a considerable period of time.We expect BOI to revise 2016 growth forecast upwards on 26.9 to approximately 2.7% (from current 2.4%).PC demand remains strong as underlined by debit card purchases.Purchases up 7.5% SAAR in May-July.This trend likely to continue, as household debt still relatively low.We are forecasting growth of 2.7% in 2016 and 2.9% n 2017.PC will continue to provide the main driver on wage growth, strong employment, and low rates.Exports likely to improve on stronger global demand, despite strong ILS.Investments will expand on new Intel plant construction.Residential investments likely to decline slightly on higher taxation imposed on second home buyers.Government spending is expected to accelerate.Strong growth implies the following:Unemployment expect to decline with tightening labor market.Tax revenues likely to reach fiscal target. Deficit target of 2.9% appears to be credible.CA surplus is expected to contract on strong import growth.BOI likely to start normalizing rates in Q417 (not Q118 as previously expected).A more hawkish tone from the BOIClearly the rate hold decision for September came as no surprise, nor did most of the macro data presented in the monetary announcement. We do note a more hawkish stance, as expressed in the following statements:"The first estimate of second-quarter growth data surprised to the upside.""The picture con...

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