karnit flug : the israeli economy – a macroeconomic perspective main points of a lecture by dr karnit flug, governor of the bank of israel, at the supreme court, jerusalem, 6 august 2015. * * * the israeli economy is an open economy that is greatly affected by developments abroad. this is reflected in the growth rates in the economy, which are very much in line with those abroad. the effect of activity abroad is mainly reflected through international trade, which affects demand for israeli exports, both goods and services. goods exports are in a virtual standstill, against the background of the virtual standstill in global trade, which declined slightly in 2013 and recovered slightly during 2014. in contrast, services exports have performed better than global trade. the labor market is in good condition. the unemployment rate is very low and this, alongside the continuing trend in the labor force participation rate, with new participants finding employment, reflects an increasing trend in the employment rate. the development of real wages per employee post indicates a moderate increase in recent years, and acceleration in the past year. monetary policy the bank of israel ’ s policy acts to achieve the bank of israel ’ s targets as set out in the law. the main target is achieving price stability, meaning meeting the inflation target, and subject to that, support for the other economic targets, chiefly growth and employment, and support for financial stability. in recent months, the inflation rate has been below the target, and in the past 12 months, prices have declined by 0. 4 percent, mainly due to a decline in fuel and commodities prices. in contrast, one - year forward inflation expectations are at the lower bound of the target range – 1. 0 percent. since the beginning of the year, the shekel has appreciated, which has contributed to lower prices, following a number of months of depreciation in the last few months of 2014. the appreciation also makes it difficult for israeli exporters to compete in the global market, and our estimation is that the shekel is appreciated relative to equilibrium levels. against the background of these developments – which are also affected by developments in the global economy – the bank of israel lowered the interest rate to the historically low level of 0. 1 percent, and purchased foreign exchange. the budget and the fiscal aggregates the government has recently been dealing with the finishing touches of the budget. the proposed budget for 2015 and 2016, which was approved by the government, includes deficit targets of 2. 9 percent

nadine baudot - trajtenberg : israel ’ s market developments and monetary policy objectives remarks by dr nadine baudot - trajtenberg, deputy governor of the bank of israel, at the globes capital market conference, tel aviv, 2 june 2014. * * * this is my first public speech as deputy governor, and i am pleased to be back to speak to those active in the capital market. in my remarks, i would like to look back on the monetary committee meeting that took place a week ago, in which we decided to leave the interest rate at its current level, and i would like to speak about what we saw, and what we did not see, in the market ’ s developments. i would like to re - state that the bank of israel has three objectives that inform our policy decisions. the first, and classic, objective, which is so relevant to the state of israel from an historical standpoint, is obviously price stability. the second objective deals, among other things, with real developments, and the third is not a new issue, but it is one with new importance – financial stability. this means that when we look at the data, we look, obviously, at inflation, and perhaps even more importantly, at inflation expectations. second, we assess the real developments in the economy and interpret the new data that has become available in the past month, and third, we track developments in the assets markets, and the level of leverage in the economy, which is obviously one of the most important indicators of financial stability. let ’ s start with inflation. inflation over the past 12 months is at the lower bound of the target range of 1 to 3 percent. in contrast, expectations are closer to the midpoint of the range, although they have recently declined slightly. we also look at inflation expectations over the long term, which are also within the target range. right now, if we analyze the relatively low level of inflation that we have, we can try to understand how much of it comes from low inflation in israel and how much is imported from abroad. we can see that inflation abroad is also low, and the case of switzerland is prominent, as they have been coping for some time with low, and even negative, inflation, which is obviously not the situation in israel. if we break down the consumer price index and look separately at inflation in the tradable components and inflation in the nontradable components, we can see a significant gap : inflation