Hungarian policy makers voted 9-4 to keep interest rates unchanged last month, as the rate-setting Monetary Council remains divided over the outlook for inflation and wage increases.
The majority voted to keep the benchmark two-week deposit rate at 8%, unchanged for a third month, minutes from the meeting released today on the bank's Web site show. The minority, including central bank President Zsigmond Járai and his three deputies, voted to raise the rate to 8.25%. Hungary's inflation rate has almost quadrupled since April, as Prime Minister Ferenc Gyurcsány's government raised taxes and utility bills.
The consumer price index is set to rise in the coming months, though policy makers are in disagreement over how much and for how long, according to the minutes. The key rate is the EU's highest. „Understanding the inflation data of the next few months will be difficult because of uncertainties in methodology,” the statement said. „Those proposing to hold the rate argued that it's not worth changing the wait-and-see policy until there are unequivocal signs of inflation risks being realized.”
The bank predicted the annual inflation rate may rise to as much as 9% this year, compared with 7.8% in January. It remains to be seen whether wage growth will accelerate, fanning prices, or whether it will slow as the bank predicted in a November report, according to the minutes. Járai on January 19 predicted that the annual inflation rate may exceed 10% for the first time since 2001 this year.
The new forecast shows that central bankers are becoming more optimistic about the path for the index, economists said. This is a „big positive surprise,” said Gyula Tóth, an economist at UniCredit MIB in Vienna, in an e-mail. „This would be a big positive compared with Járai's comments.” Demand for forint assets remains „strong,” as signaled by a continued growth in the stock of Hungarian government bonds held by foreign investors and the forint's gains versus the euro, the bank said. Global risk appetite has stabilized at a high level, it added.
Central bankers in favor of keeping the rate unchanged said that the factors lifting the annual inflation rate were one-time, while the government's austerity measures will curb consumer spending more than previously expected, keeping prices from rising further. Those who voted to raise the rate pointed to accelerating services inflation as a proof of increased expectations and argued that wage growth has yet to decelerate, according to the statement. A smaller increase now would prevent the need of lifting borrowing costs more later, they added. (Bloomberg)