The Hungarian central bank has not surprised because it has left interest rates unchanged. In a repeat of the previous meeting, the bankers also discussed a 25bps hike and a 25bps cut, but the overwhelming majority voted for no change.
The MNB expects the inflation to remain above target and even accelerate in the first half of the year. Moreover, the new government measures will push inflation in 2013 significantly higher than expected before. Contrary to the previous rhetoric, Governor Simor did not repeat that he was confident that the inflation target is achievable in 2013. On the other hand, according to Simor next growth forecast for both 2012 and 2013 will be lower.
As the government measures will lift inflation, the central bank may be concerned about the impact on inflation expectations. This mutes motivation to cut interest rates. However, the risks for inflation expectations are quite low as the domestic demand remains weak. Currently, the way toward lower rates is blocked mostly by the Hungary´s dispute with the EU. As Hungary has not yet reached the deal about the emergency loan, we expect the rates the stay stable.