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(Bloomberg) — Hungary will probably keep its key interest rate unchanged as policymakers looking to start monetary easing seek evidence that slowing inflation can be sustained.
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The National Bank of Hungary will keep its benchmark interest rate at 6.5% on Tuesday for a 16th month, tied with Romania for the highest level in the European Union, according all but one of 23 economists in a Bloomberg survey. One forecasts a quarter-point cut. The decision is scheduled for 2 p.m. in Budapest, followed by a briefing and statement an hour later.
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The central bank changed its monetary-policy guidance last month from ruling out rate cuts to making decisions “meeting by meeting” based on incoming economic data. The bank said its projection showed inflation within the 1 percentage point tolerance band around its 3% target over the monetary horizon.
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While inflation slowed further in December, closing in on the central bank’s target, Deputy Governor Zoltan Kurali on Jan. 14 pointed to “stubborn” services inflation, a key gauge for inflation expectations, which at 6.8% was more than double the headline data last month. Policymakers need “a lot of conviction” before beginning rate cuts, Kurali said.
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That’s likely to shift the focus to February, following the publication of key January inflation data that may show the extent of repricing at the start of the year, especially in the services sector. The statistics office will publish the data on Feb. 12.
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Money market traders expect one or two quarter-point rate cuts in the next three months, possibly with the first one as soon as in February, according to forward rate agreements. Hungary holds parliamentary elections on April 12, with Prime Minister Viktor Orban’s party trailing in most polls after 16 years in power.
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The forint’s appreciation — it’s close to a two-year high against the euro amid an emerging-market rally and dollar weakness — is widening the room for rate cuts by limiting the cost of imported goods, including energy.
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