The Monetary Council (MC) of Hungary kept its key policy interest rate (3-month deposit rate; +0.9% since May 2016) and the overnight deposit rate (-0.15%) again unchanged this week, noting that consumer price inflation remained unchanged at 2.7% y/y in January. It is down from a near-six-year high of 3.8% in October 2018 and now well within the MC’s 3% ± 1pp target range. However, it was also noted that core inflation jumped to 3.2% in January from 2.5% in December, mainly owing to stronger price dynamics of market services. The latter could be driven by a still overheating labor market which will continue to pose upside risks to inflation. The unemployment rate came in at 3.6% in Q4 2018 (-0.2pp q/q as well as y/y) and nominal wages rose by a rapid +10.2% y/y in December, only slightly down from +11.2% in June 2018, according to the Hungarian Central Statistical office. The MC reiterated that it was prepared for a future normalization of its monetary policy and we expect it to tighten when needed.