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Hungary policy rate to stay flat through 2011 after MPC change, says City

Hungary's central bank MNB is set to keep its policy rate on hold throughout this year after new members join the Monetary Policy Council this spring, London-based emerging markets analysts said on Wednesday.

In its monthly Emerging Markets Outlook report released to investors in London, RBC Capital Markets, a major global investment group, said that while "there is little doubt" that inflationary pressures are a concern, it appears that the three recent interest rate hikes in as many months "have been front-end loaded".

At the end of February, the four independent members on the Council, having served their six-year terms, will step down. Their replacements are expected to be chosen by the parliament and "are likely to be more sympathetic to the government's view that interest rates have already risen far enough".

"We believe policy rates will remain at their current level for the rest of the year, even though, in theory, the four independents could outvote the three permanent NBH policymakers", RBC Capital Markets said.

London-based analysts, however, have voiced conflicting views over whether the expected change in the MPC's composition will make the rate-setting body significantly more dovish, and thus stop the tightening cycle that started in November.

In a recent report, Morgan Stanley said that the argument that changes to the MPC will result in no more hikes because four doves will join the MPC in March "is too simplistic". In the past, such speculation "has often proved very wrong ... We therefore see no reason to change our call for a further 75bp of rate increases this year to 6.75%", Morgan Stanley said. (Econews)