Israelis embrace stronger shekel in contracts

Over the past year, the shekel has appreciated by about 10% against the dollar, which currently trades at NIS 3.81.

As the dollar trades near a 10-year low against the shekel, Israelis are increasingly heeding the call of Bank of Israel Governor Stanley Fischer to switch to shekel-linked rental leases, a move that is expected to reduce the US currency's influence on local inflation. "Over the past year, we have seen a significant decline in the weighting of new contracts denominated in dollars," said the Bank of Israel. "Continuation of the trend is likely to lessen the impact on the consumer price index and as such reduce the volatility of the monthly index, which until now was relatively high." Figures released by the central bank on Sunday showed that the share of new rental contracts denominated in dollars dropped in recent months, from about 68 percent in October to 62% in November, compared to about 85% of all contracts in January 2007 and 90% in 2005. The bank said homeowners were switching to shekel-linked leases due to the weakness and volatility of the dollar. Hanan Schlesinger, CEO of Anglo-Saxon real estate, told The Jerusalem Post last month that in the second half of 2007 about 75% of the agency's rental deals were fixed in shekels. "Assuming the dollar remains at current levels, I believe that within a year nearly all rental contracts will be denominated in the local currency," Schlesinger said. The continued plunge in the dollar has increased pressure for a drastic change that would move the local real estate market from one that historically has been dollar-denominated to one priced in shekels. Over the past year, the shekel has appreciated by about 10% against the dollar, which currently trades at NIS 3.81. Housing prices, which account for more than 20% of the CPI, have dominated the growth rate and volatility of the index over the past year. The central bank added that the impact of the dollar on the CPI index, which also includes dollar-linked import purchases, amounted to about 30%. In 2007, the CPI rose 2.8%, just within the government's target range for inflation of between 1% and 3%.