The monetary council (MC) of Hungary's central bank decided on May 27 to cut the base rate by 10bps to a new historic low of 2.40%, the bank said in a statement on its website. This was the twenty first consecutive reduction, which was broadly expected by market analysts.

The bank slowed down the easing pace already in March following 15bps cuts in January and February.

The rate setters consider that the output remains below the potential and is likely to meet it in the course of next year. Inflationary pressures are likely to remain moderate over the medium term. The persistently low inflation environment may provide a firmer anchor for inflation expectations. Domestic real economic and labour market factors continue to have a disinflationary impact, but demand-side disinflationary pressures are weakening as activity gathers pace.

The MC members agreed that the global investor sentiment has been supportive in the past month, but future developments are surrounded by uncertainty due to the ongoing conflict between Ukraine and Russia. This warranted a cautious approach to policy. At the same time, domestic risk premia decreased and the forint exchange rate appreciated steadily in the past month.

As in the previous two months, central bankers noted that the interest rate has significantly approached a level which ensures the medium-term achievement of price stability and a corresponding degree of support for the real economy.