rate tool, which has reached a very low level. the bank of israel has for the past few years been pursuing a policy of involvement in the foreign exchange market in cases of excessive volatility in the exchange rate that is not in line with the fundamental economic conditions. the bank also purchases foreign exchange in order to offset appreciation pressures derived from market overshooting in reaction to the production of natural gas. it is important to note that our foreign exchange policy takes the long - term economic forces into account, and we are acting to give the business sector time to adjust to the trends derived from these forces. in order to deal with the risks derived from growth in the balance of housing credit, the bank of israel has for a number of years been placing various limitations on the mortgage market. these are prudential tools that reduce the risk both to the financial system and to borrowers. a few words on the long term. over time, we see very slow growth in the rate of productivity, and in parallel to growth, we were seeing growth in poverty and in inequality. the main challenge facing the israeli economy over the long term is to succeed in creating inclusive growth. i would like to explain what i am referring to by this term. i am referring to continued, sustainable growth whose results will be divided more equally among all parts of the population, such that they will support a higher standard of living for all sectors, and a reduction of poverty and inequality in the distribution of income. inclusive growth cannot be driven by a narrow growth engine. it must be broad based over a variety of industries, so that it can provide employment to all parts of the population over time. these include, for instance, small and medium businesses, tourism, and low technology industries – industries that can provide employment and income to workers at all skill levels. such growth, in the center of the country and in the periphery, will ensure that the labor market is able to also absorb those who join it from the sectors with relatively low human capital or with employment levels that are still low. the challenge in creating inclusive growth is immense. it is a goal that many countries are grappling with, and it is not easy to achieve. it is important that, in formulating its strategic plan for the coming years, the government focus its policy such that we progress in this direction. inclusive growth will contribute to strengthening the cohesiveness among various population groups and within the groups themselves. bis central bankers ’ speeches

the quality of european and national authorities. instead, it is a consequence of the inherent difference between rules and institutions. there are two reasons why institutions have proven superior. first, rules are generally static and require countries to adhere to specific actions, whereas institutions are required to achieve prescribed objectives. rules therefore cannot be updated quickly when unforeseen circumstances arise, whereas institutions can be dynamic and employ flexibility in their approaches. that distinction matters hugely when underlying parameters and economic relationships change – as they often do. the distinction also matters for citizens, who ultimately care most about the results of economic policy rather than the actions taken by governments. the ecb ’ s monetary policy during the crisis is an example of the greater flexibility of action afforded by an institution - based approach. the ecb was faced with a range of challenges that few could have predicted when our mandate was defined. but the treaty combines our mandate for price stability with discretion over the tools we could use to achieve it. this allowed us to deploy a range of unconventional policy tools to ensure that inflation remained in line with our aim. neither operating monetary policy according to a fixed rule nor restricting ourselves to conventional policy tools would have sufficed. discretion and flexibility in the use of our tools helped to strengthen our credibility. flexibility and credibility were, in this instance, mutually reinforcing. by contrast, rules lose credibility if they are applied with discretion. rules will be undermined if countries find reasons to circumvent them or rewrite them as soon as they bind. but circumstances will always arise which were not foreseen at the time the rules were written and which call for flexibility. in the case of rules, there is an inevitable trade - off between credibility and flexibility. this is why there are always tensions when it comes to economic policies that follow the rulesbased approach. but the transition to an institutions - based approach requires trust between countries. and trust is based on strict compliance with the existing rules, but also on the ability of governments to reach mutually satisfactory compromises when the circumstances call for flexibility and to explain them adequately to their citizens. that transition nevertheless remains necessary. the european commission ’ s recent initiative on the international role of the euro provides a further example of the need to move from the current framework of various laws and ad hoc rules to a system based on harmonisation and institutions. rising trade tensions and the growing use of sanctions as an instrument of foreign policy have meant that the laws of the united states are increasingly being applied