Inflation rose from 5.2% to 5.4% in March and has not been higher since September of 2024. Inflation developed in line with our forecast but the outlook has deteriorated slightly going forward, mainly due to higher oil prices caused by the conflict in the Persian Gulf. Our preliminary forecast is now for 5.5% inflation in April with gradual reduction after that. If this forecast holds, the Central Bank is almost certain to raise the policy rate by 0.25 or 0.50 percentage points in May. This would be the second increase running as the Monetary Policy Committee raised the rate at its March meeting, for the first time since August 2023, and used considerably stricter language in its statement than in February.
The housing market continues to show signs of cooling. Housing prices rose by a mere 0.1% between months in February and have, on an annualised bases, been lower than general price increases in recent months. Purchase contracts were also considerably fewer between months in February, or around 12%. Sales of new apartments are slow and a new estimate from the Housing and Construction Authority (HMS) shows that the stock of unsold apartments is rapidly increasing: There are now 41% more unsold apartments than in the previous estimate conducted in September 2025. The Financial Stability Committee of the Central Bank raised the issue at its last meeting at the end of March but noted that defaults in the construction sector were still low. This was nevertheless noted as a risk to be monitored.
In general, the economy has cooled. Unemployment has increased and card turnover slowed. The most recent figures show a 1.5% real increase in payment card turnover in February, the lowest figure since September 2024. Domestically, card turnover has contracted. The fiscal budget for the coming years was published at the end of March. The budget is balanced as a result of such measures as increased Treasury revenue through taxation and cost-cutting initiatives.
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