After yesterday’s above-than-expected January inflation in Slovakia, the figure came in above expectations also in Hungary. Headline inflation accelerated to 5.5% Y/Y from 4.1% Y/Y in December and core inflation rose to 4.9% Y/Y. Netted of the VAT effect, underlying inflation trend could be 1.5-1.6pp below these levels, but that still means a trend above the central bank’s 3.0% Y/Y inflation target. This could have implications for monetary policy, but the central bank looks to be in a difficult position to defend its January move and hold the base rate unchanged at 7.00%, while the market was looking for further 50bps rate hikes. Re-starting a hiking cycle would undermine the credibility of the central bank while keeping the base rate unchanged means that they fully rely on a positive outcome from the ongoing IMF/EU negotiations. The short-term outlook is probably negative in our view for bonds and the currency and this may be especially so if IMF/EU talks take a bumpy road as suggested by recent EU Parliamentary hearings, where the media law was again heavily criticised by Neelie Kroes.