supports lowering the interest rate. the exchange rate is in an appreciation trend – we saw a sharp appreciation at the beginning of 2013 and moderation in the trend in recent months. another area that we have been dealing with a lot recently is the housing market. the volume of activity, transactions and mortgages, is very high, housing prices continue to increase, and there is significant growth in the volume of building starts and building completions. should it continue at appropriate levels, this growth is expected to lead to moderation in the volume of homes, although we still do not see this moderation. we also look at various indicators that deal with financial stability. beyond the collection of data that i have presented here briefly, we use a macroeconomic model in order to assess the developments in the market, and to discuss the effects of various policy scenarios on activity in the market, inflation, and so forth. the framework in which we assess such scenarios is a very complex model, called the dsge model, which is used by many central banks operating within an inflation targeting regime. this model combines the connections between the various economic units in the market and the economic variables, both nominal and real, within one coherent framework. the model enables us to make simulations and examine what the effect would be of alternative policy paths, as well as exogenous shocks, on inflation and on economic activity. we look at the various transmission channels, as reflected in the model, from the bank of israel interest rate and the other economic variables to the target variables – inflation and the volume of economic activity. as such, this is the conceptual framework on the basis of which we make policy decisions. if we glance at the discussions during which we made the interest rate decision for march, we looked at a decline in the inflation environment, a slowdown in gdp and business product growth, weakness in the labor market, the cumulative appreciation of the shekel, and slow and moderate recovery within a low inflation environment and monetary accommodation in the global market. all of these considerations supported monetary expansion, meaning a reduction in the interest rate. against these considerations, there is, of course, the housing market and the continued increase in home prices. in this context, i will mention that there are other tools available to the supervisor of banks in order to reduce the risks in this market, and we have used these tools. so, this is the policy decision process that we employ at the bank of israel. we can think of various issues that studies written

its realization. herein lies the importance of using an economic model that ensures the consistency of each component of the picture and of policy. looking forward, based on the updated situational assessment, the research department ’ s assessment is that the interest rate is expected to begin increasing in the last quarter of 2017. here too, the range of possible interest rate paths is very broad, and relates to a broad range of forecasts of economic activity. it is important to emphasize that this is the interest rate path assessed by the research department as consistent with the other components of the macroeconomic forecast, and that also serves as input for the monetary committee ’ s discussions. it is not necessarily the path that the monetary committee members view as the future interest rate path, and it certainly is not binding on the monetary committee. as part of the forecast, we also indicate the main risks to the forecast that has been formulated, and discussion of these risks serves as input in the formulation of policy. the research department ’ s assessment is that the risks to the current forecast are : uncertainty surrounding the markets ’ response, including that of the foreign exchange market, to the increase in the federal funds rate and extension of quantitative easing in europe — the creation of a split in the direction of change in monetary policy between the two blocs. uncertainty regarding the trend of world trade and of global growth against the background of 3 / 4 bis central bankers'speeches increasing calls to raise international trade barriers. based on the macroeconomic picture sketched out through the forecast, the additional information i mentioned, and the assessment of the various risks to its realization, as formulated during the year, the accommodative policy outlined by the bank of israel ’ s monetary committee has been reflected in maintaining the interest rate at the low level of 0. 1 percent, and for the first time, in october 2015, the committee published an assessment that this policy would remain in place for a considerable time. such an announcement is referred to in central bank parlance as “ forward guidance ”, and has the power to affect long - term interest rates as well, beyond the effect on the short - term interest rate set by the central bank. this is in addition to intervention in the foreign exchange market, which included a component offsetting the negative effects of pressure on the exchange rate derived from natural gas production, and intervention in order to prevent too sharp a deviation from the exchange rate derived from the basic economic forces. the monetary committee ’ s policy also took into