Inflation slowed in Hungary and Poland last month but their central banks are in no position to cut interest rates and economists expect crisis-racked Budapest will rather have to tighten policy again soon to preserve financial stability. In Poland, emerging Europe's largest economy, headline inflation stood at 4.6 percent in December, statistics office data showed, in line with forecasts and down from 4.8 percent in the previous month but still well above target.
The central bank, which this week left rates unchanged for the seventh consecutive month, remains focused on currency risks linked to the euro zone debt crisis and has made clear it is in no hurry to relax policy despite a slowing economy. "Despite the decline, inflation is still relatively high, above the central bank's range, so the situation is not too comfortable for the Monetary Policy Council," said Grzegorz Maliszewski, chief economist at Millennium Bank in Warsaw.
"The chances for a rate cut in the coming months are rather slim. We expect one in the middle of the year, but that will depend on the condition of the economy and the zloty." After leaving its key rate at 4.5 percent on Wednesday, the bank said the chances of a rate cut this year had dimmed because of stubbornly high inflation - it targets price growth of 2.5 percent - and the weaker zloty.
The unit has lost about 10 percent of its value against the euro since August as investors fled emerging markets they perceive as relatively risky amid a deepening crisis in the euro zone. In Hungary, where the economic and market outlook is much gloomier as the government struggles to secure funding from the IMF, inflation slowed to 4.1 percent year-on-year in December from 4.3 percent in November, below analysts' expectations.
The Hungarian central bank raised rates by 50 basis points to 7 percent last month to shore up jittery markets and said it remains ready to use all tools available to ensure financial stability. "As a result of a deterioration in risk assessment we forecast rate rises in January and February worth 100 basis points," said Zoltan Arokszallasi of Erste Bank.
The weakening of the forint - which hit a record low of 324.2 per euro last week - and a VAT hike are expected to push inflation up again in January. After clawing back some ground this week the forint eased again on Friday after the IMF said it would need to see a strong commitment from Budapest to engage on policy issues relevant to macroeconomic stability before agreeing to launch talks on a new aid programme.
Elsewhere in the region, euro member Slovakia saw consumer prices rise last month by a slower than expected 0.1 percent on a monthly basis to give an annual rate of 4.4 percent. In other data on Friday, Poland's central bank said the current account gap narrowed to a smaller-than-expected 1.03 billion euros in November from a revised 1.55 billion the previous month.
The data, which gave a boost to the zloty, showed higher current transfers - mainly European Union funds - and lower dividend payments contributed to the figure, along with still-buoyant exports. The Czech Republic saw a current account surplus of 6.61 billion crown ($330.45 million) in November, defying analysts' expectations of a 0.30 billion crown deficit. The central bank said the result was thanks to surpluses on the balances of goods and services, while the income balance ended in deficit.
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