​The decision to keep the interest rate for January 2017 unchanged at 0.1 percent is consistent with the Bank of Israel's monetary policy, which is intended to return the inflation rate to within the price stability target range of 1–3 percent a year, and to support growth while maintaining financial stability. The Monetary Committee continues to assess that in view of the inflation environment, and of developments in the global economy, in the exchange rate, as well as in monetary policies of major central banks, monetary policy will remain accommodative for a considerable time.

Following are the main considerations underlying the decision:

• The CPI for November declined by 0.4 percent, a greater decline than had been expected, and below the seasonal path consistent with achieving the inflation target. Inflation as measured by the change in the CPI over the past 12 months remains negative, despite the direct effects of initiated price reductions and of the decline in energy prices dissipating. Short-term inflation expectations are below the target, while longer term expectations derived from the capital market remained anchored near the midpoint of the target range. The Research Department assesses that the inflation rate will be at the lower bound of the target range within about a year.
• The picture of real economic activity remains positive. Based on preliminary data from the Companies Survey, it may be assessed that in the fourth quarter as well, business sector product grew at a pace similar to that of previous quarters. Labor market data continue to indicate a high level of employment, a low level of unemployment, and a continued increase in wages. The Research Department assesses that GDP increased by 3.5 percent in 2016, and that in the coming years it will continue to grow by an annual rate of around 3 percent or slightly higher.
• The global economy continues to grow at a slow pace, with a decline in the rate of expansion of world trade. Political developments in some advanced economies are likely to weigh further on trade growth. In the US, there was an acceleration in activity in the second half of the year, while in Europe growth is moderate and the risks to its persistence are relatively large. The US federal funds rate was increased and the expected future interest rate path rose as well; in contrast, the ECB extended the horizon of its quantitative easing.
• From the monetary policy discussion on November 27, 2016, through December 23, 2016, the shekel strengthened by 1.3 percent against the dollar, and appreciated by 2.0 percent in terms of the nominal effective exchange rate. The shekel has appreciated by 5.6 percent over the past 12 months in terms of the nominal effective exchange rate, against the background of appreciation of 6.3 percent vis-à-vis the euro. The level of the effective exchange rate continues to weigh on the growth of exports and of the tradable sector. Home prices continue to rise at a high rate, even though the stock of unsold new homes is high, and in the past year there have been more than 50,000 building starts. The slowdown in monthly mortgage volume continues, with a continued increase in mortgage interest rates.
  

The Monetary Committee is of the opinion that the risks to achieving the inflation target remain high. The Bank of Israel will continue to monitor developments in the Israeli and global economies and in financial markets. The Bank will use the tools available to it to achieve its objectives of price stability, the encouragement of employment and growth, and support for the stability of the financial system, and in this regard will continue to keep a close watch on developments in the asset markets, including the housing market.