MC decides to leave base rate unchanged at 8%. The Monetary Council (MC) of the National Bank of Hungary (NBH) decided to leave the base rate unchanged at 8% at its regular rate-setting meeting on Monday. We note that analysts were divided over “on-hold” decision and 25bps rate hikes, although the latter option was the consensus forecast in the surveys of both Reuters and business portal portfolio.hu . Thus the flat rates should not be deemed as major surprise particularly against some recent statements of governor Zsigmond Jarai, who traditionally uses rather “hawkish” rhetoric. More specifically, last week he said that “raising the base rate was not the only option” to counterbalance inflationary pressures. Despite the “on-hold” decision in our opinion the statement of the MC (as well as the November Inflation Report) signifies that the central bank might have not yet completed its tightening cycle. It appears that one of the main arguments of the “doves” is the downward impact on inflation from the output gap expected for 2007 and 2008. Furthermore the deficit reduction measures are expected to bring down inflation in the longer term by restraining consumption. Fully in line with expectations the other major factor for the not changing the base rate was the improved global investors’ sentiment and the consequent HUF appreciation.