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Fresh inflation data suggest rates will stay on hold

Fresh inflation data will give National Bank of Hungary rate-setters little reason to return to a tightening cycle, but loosening is unlikely in light of higher fuel prices, analysts told MTI on Friday.

Consumer prices in Hungary rose 4.1% year-on-year in February, accelerating from 4.0% in January, the Central Statistical Office (KSH) said in the morning. Prices were up 0.4% month-on-month.

Gergely Suppan of Takarékbank said the lack of internal inflationary pressure does not give any reason for a rate rise, but central bank rate-setters are not likely to start a loosening cycle either because of the risks. Core inflation, which excludes volatile fuel and food prices, was just 1.9% year-on-year in February, he added.

Suppan said CPI would remain around 4.2% for one or two months, but could fall from mid-year because of the high base.

Zoltán Árokszállási said fuel and food prices rose over the headline figure in February, as expected. But service prices, which are an important indicator of long-term inflation, were up just 1.9%, giving rate-setters no reason to start another tightening cycle. There continue to be risks, he added, warning that the full effect of higher fuel prices would show up in the March index.

The MNB's Monetary Council decided to keep the central bank's key rate on hold at 6% at a meeting in February, interrupting a tightening cycle started in November.