particular growth, employment and the narrowing of social gaps, and to maintain the stability of the financial system and its proper functioning. recently inflation has been within the target range, and will probably remain within it until the end of this year. inflation expectations for next year, however, are relatively high. as the expectations are around the upper limit of the target inflation range, this does not present a serious problem at this stage, but it is our task to ensure that inflation should not exceed the upper limit of the target. to achieve that requires a slightly tighter monetary policy. let us turn now to the second goal, employment. the rate of unemployment, which increased during the crisis and declined during the recovery almost to its pre - crisis level, has recently risen slightly. this, in effect, is good news, as the unemployment rate has increased because of an increase in the rate of participation in the labor force, and not because of a drop in the number of employed persons. if the rate of participation had not risen, the rate of unemployment would today be about 5. 5 percent. our function is also to promote economic growth, and we therefore also keep an eye on developments in the exchange rate. the latest figures show that exports remained steady while imports declined, so that we expect the current account surplus to increase despite the relatively strong shekel exchange rate. nonetheless, we must continue to support exports, and we will therefore continue to intervene in the foreign currency market, and like every other country, we must be prepared for every possible economic scenario. with regard to financial stability, we are currently mainly concerned over developments in the housing market. the ministry of finance reports that prices of new houses have fallen, while the central bureau of statistics ( cbs ) reports that overall housing prices continue to increase. until the trends in the real estate market become clearer, the bank of israel must ensure that no bubble in housing prices develops that would harm financial stability. the best solution is to boost the supply of houses and thus lower their prices, and together with the ministry of finance we are examining ways of doing that. meanwhile, as i said, we must ensure that financial stability is maintained. another issue i would like to address is that of the medium term. the question is asked whether the recent discoveries of natural gas will have a major impact on israel ’ s economy. it is too soon to answer. we have to continue encouraging the various investors to keep searching for gas, and must await results. the immediate issue here is

stanley fischer : the openness of israel ’ s economy to the global economy and the importance of israel ’ s joining the oecd address by professor stanley fischer, governor of the bank of israel, at the globes business conference 2006, tel - aviv, 11 december 2006. * * * the subject of my address to you today is the openness of israel ’ s economy to the global economy, and i will focus on the importance of israel ’ s joining the oecd. a. the state of the economy first, i would like briefly to review the state of the economy, and that picture is quite a rosy one. the economy is recovering rapidly after the war in the north, even faster than we thought at first. national accounts data indicate a 1. 4 percent decline ( in annual terms ) in gdp in the third quarter. the impact of the hostilities on gdp was weaker than we had assessed previously, and it appears that the rate of growth in 2006 will be 4. 8 percent, slightly higher than our initial post - war forecast. our forecast for 2007 still indicates healthy growth of 4 percent. this was our assessment immediately after the hostilities, and i will not be surprised if it is revised upwards in the future. furthermore, the most recent unemployment data point to a reduction in the rate of unemployment in the third quarter to 8. 3 percent, compared with 8. 9 percent in the third quarter of 2005, alongside a rise in the rate of participation in the labor force during 2006. the nominal - financial side completes the picture of a strong economy. inflation is low, the financial markets are functioning well, including the foreign currency market, which reflects not only global developments but also the large inflow of foreign investment to israel and the impressive surplus in the balance of payments current account ( expected to reach 4. 7 percent of gdp in 2007 ). at this point i would like to refer to the fact that currently inflation is below the lower limit of the target range. at the outset i must state the obvious : external shocks have a significant impact on inflation, and the effects can be strong and immediate. why do i say this? you will remember that in the first half of the year the rate of inflation over the previous twelve months was above the upper limit of the range, about 3. 5 percent. now, after a cumulative drop of 1. 5 percent in september and october, the rate has fallen to below the lower limit. the bank of israel ’ s approach is