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Wednesday, February 20, 2008

Hungary Real Wages December 2007

Hungary's monthly average gross wage rose at a slower pace than expected in December, reducing pressure on the central bank to raise the European Union's second-highest interest rates. The average monthly wage rose an annual 4.3 percent to 210,287 forint ($1,164), the Budapest-based statistics office said today.

Central bank policy makers, who will next meet to discuss rates on Feb. 25, said last month that the increase in inflation expectations, as reflected in wage developments, constituted a risk to price-growth targets. The central bank has kept the benchmark two-week deposit rate at 7.5 percent since last September.

This lower-than-expected figure would seem to reduce the likelihood of a rate increase at the next meeting. Interestingly, such an increase has been priced in by the market at this point.

As a result the forint fell to 266.83 per euro at 9:32 a.m. in Budapest, from 264.77 late yesterday. The yield on the benchmark three-year bond rose to 8.33 percent from 8.28 percent, reaching the highest in 16 months. Forward-rate agreements show that investors now expect the benchmark rate to rise to 8.25 percent within the next six months.

In December, wages at private companies were 3.2 percent higher than a year earlier, while salaries among public workers rose 7.2 percent. Take-home wages across the economy averaged 126,259 forint, 2.2 percent more than in December 2006.

Bonuses seem to be a significant part of the story here, since regular private-sector wages, a figure that doesn't include bonuses and is one of the central bank's most closely watched indicators, rose by 3.2 percent from a year ago. The pace of increase fell from 8.5 percent in November, to the lowest rate since July 2006. The drop in bonuses is only to be expected given the economic slowdown which is taking place. Base salaries may well prove more resistant to this.

Real net wages fell by 5.2% year on year in December, reversing the trend to smaller drops in real wages that had been registered in previous months. Retail sales results for December are due out on Friday, and obviously the only thing left that is like to support domestic consumption is that increasing borrowing in Swiss franc loans.

The number of Hungarians employed in November was 2.69 million, 2.3 percent less than a year earlier. The government shed 6.4 percent of its employment in a year, reducing the number of public workers to 715,600.

In other news in today, the Government Debt Management Agency (ÁKK)seems to be having increasing difficulty rolling over short term debt, and yields are rising rapidly. They received only HUF 25.9 billion worth of bids on HUF 20 bn 6-month discount T-bills at todays auction, and the average yield was set at 8.07%, up 22 basis points from Tuesday's benchmark fixing and 65 bps higher than at the previous auction of this instrument two weeks ago.

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