CEE ECONOMY-Hungary's January inflation seen opening the door to rate cuts

BUDAPEST, Feb 12 (Reuters) - Hungary's headline inflation HUCPIY=ECI eased to 2.1% in January, coming in below market forecasts, while core inflation also fell below the central bank's 3% target, likely opening the door for the bank to resume rate easing after a long pause.

The central bank, which has left its benchmark rate steady at the European Union's joint-highest 6.5% since late-2024, has said the January inflation reading would be pivotal in shaping the outlook for rate easing it first flagged in December.

Inflation undershot the bank's 2.2% estimate for January and has retreated from the EU's highest levels of more than 25% in 2023, helped by government price controls on basic foods and service sector companies postponing fee hikes until after an April election.

ING economist Peter Virovacz said the figures, which were broadly in line with his forecast and signalled weak repricing at the start of the year even in closely-watched services, opened the door for the bank to lower interest rates.

"I think there is no question that the bank can start easing," he said, projecting a 25 basis-point rate cut this month and next amid a further likely decline in price growth in February, helped by base effects.

At 0753 GMT, the forint EURHUF=, which scaled a 26-month-high to the euro this week amid falls in the dollar, traded at 380.35 versus the euro, slightly weaker from levels just before the data release.

The April 12 ballot represents a key factor of uncertainty for 2026, with Prime Minister Viktor Orban launching large-scale spending to shore up his popularity at the expense of pushing the budget deficit to 5% of output for a fourth year in 2027.

Poll rival Tisza has also pledged to keep in place or even extend some of Orban's costly social policies if it wins the election, banking on stronger growth, a possible release of suspended EU funds and a wealth tax to curb the shortfall.

The central bank has two rate meetings left before the vote, with Orban's fiscal giveaways and uncertainty over government price controls and the scale of service sector fee hikes after the vote raising inflation risks, analysts have said.

Economists polled by Reuters last month projected room for 75 basis points worth of rate easing by the end of 2026, 25 bps more than expected earlier amid a slightly more benign inflation outlook over the next two years compared with their December projections.