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Gov't reform package, new rate-setters to affect monetary policy in coming months

A package of reforms the government is to unveil before the end of February and the replacement of central bank rate-setters are likely to affect the chances a tightening cycle at the National Bank of Hungary ends in the coming months, analysts told MTI on Monday.

The MNB's Monetary Council raised the base rate by 25bp to 6.00% at a meeting on Monday, in line with analysts' expectations.

György Barta, chief analyst at CIB Bank, said higher-than-expected December inflation was probably the main reason for the rise.

Twelve-month CPI accelerated to 4.7% in December, well over analysts' 4.4-4.5% estimate.

Barta said the Council could start a loosening cycle after March, depending on the market's assessment of the government's reform package. The Council's new members are also likely to contribute to turning the trend, he added.

Replacements for the Council's four external members, whose mandates expire at the end of February, are to be picked by parliamentary committee, under amendments submitted by the government to Parliament, instead of by the prime minister and the central bank governor as at present. The government, which enjoys a two-thirds majority in Parliament, has been critical of the Council's tightening, calling rate rises in November and December “unjustified”.

The Council's three internal members are the governor and his two deputy governors.

Raiffeisen Bank's Zoltán Török also said the announcement of the government's reform package could have a big effect on the Council's decision at a rate-setting meeting on February 21. When the Council's external members are replaced, a “new era will start in the history of monetary policy in Hungary,” he added. (MTI-Econews)