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Hungary disinflation set to continue despite weak forint, says City

Hungary's disinflation is set to continue despite a considerably weaker forint as forces driving the inflation down more than offset the pass-through effect of the depreciation, London-based emerging markets analysts said after a slightly higher-than-expected set of CPI data for February had been released.

Year-on-year headline consumer inflation dropped marginally to 3.0% last month from the 3.1% January reading. Expectations averaged at 2.78% in an Econews poll conducted in the City earlier this week.

Neil Shearing, Central European economist at Capital Economics in London told Econews after the data release that the weaker forint “is essentially the only cause” of any inflationary pressure in the Hungarian economy. “But the bigger point is that inflation is yesterday's story,” owing to the “sheer collapse” in the demand pressure, he added.

Inflation figures will possibly get down to 2% later on this year, Shearing said.

He said he continues to expect a gradual approach to interest rate cuts, and does not see the Central Bank (MNB) easing this month, but nevertheless he expects Hungary's base rate to be lowered to around 6% by the end of this year.

Christine Li, Moody's's London-based economist also said that a sharp slowdown in domestic demand and continued weakness in commodity prices mean inflationary pressures will ease further this year. Moody's expects inflation to fall to 2.1% in 2009.

With credit conditions tight and activity contracting sharply, the Hungarian economy is expected to shrink by 3.4% this year and another 1% next year, she added. (MTI – Econews)