Rate stability despite upward growth surprise

ISRAEL - In Brief 29 Aug 2016 by Jonathan Katz
The rate hold decision was expected but we note that the BOI was surprised by the strong growth in q2 (3.7% Saar). Generally indicators are positive and the labor market robust. Inflation surprised on the upside in July and the the CPI excluding energy and government price cuts is up 0.8% YOY. Housing prices remain elevated despite some moderation and the shekel has appreciated by 5.1% YOY against the basket. The use of forward guidance regarding "accommodative policy for a considerable period of time " was maintained. We believe the BOI is likely to revise its 2016 growth forecast next month to 2.7% or so from the current estimate of 2.4%, due to strong GDP numbers in 1H16.Despite a more rosy picture of the economy, low inflation (far from the mid-point of target of 2%) is likely to support rate stability until early 2018.

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