Only 15% of Israelis price rentals in dollars

Only 15% of Israelis pri

January 27, 2010 00:54
1 minute read.

Israelis have increasingly followed the call of Bank of Israel Governor Stanley Fischer to stop fixing the prices of apartment rentals in dollars over the past two years as a result of the weakening of the greenback. "In the last two years rental agreements have switched from quoting dollar prices to prices in shekel," said Bank of Israel economists in a report to be published in the forthcoming Recent Economic Developments issue. Until 2007 contracts quoting dollar prices constituted about 90 percent of rental contracts; today the figure is 15%. As a result of this development, the influence of the shekel-dollar exchange rate on the consumer prices has declined significantly. The component the exchange constituted in the shortterm (up to one month) housing measure has decreased from about 0.9 to 0.48, while on the long term measure (a year and above) which in the past there showed full transmission - it has now disappeared. The housing index is one of the major consumption items in the CPI, with a weight of about 21% of the total index. Estimates performed by the Bank of Israel Research Department show that until the end of 2006, prior to the switch to shekel contracts, the transmission from the dollar to the housing component was rapid and full, whereas since 2007 it has declined, and in the long term measure has effectively disappeared. "Nonetheless, despite the move to shekel contracts, the data show that the dollar was and remains the dominant factor in explaining the fluctuations in the housing component in the short term," stated the report. "The correlation between the monthly fluctuations in the housing component and the shekel-dollar exchange rate over time was, and still is, high. Although it declined somewhat in 2005 and 2006, that was before the move from dollar to shekel contracts. Since 2007 it has risen again, and it is currently at a similar level to that at the beginning of the sample, in 2001." In reaction to the highinflation era of the 1980s, Israelis began to quote prices of various items on the domestic market in dollars. In the housing market this practice continued for years even after inflation had fallen, until the recent fall in the dollar's value.

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