The monetary council of Hungary's central bank decided on July 23 to cut the base rate by 0.25bps to a new historic low of 4%, the bank said in a statement on its website. This was the twelfth consecutive reduction, which was broadly expected by market analysts.

The rate setters expect weak demand conditions to persist, which will ensure that inflationary pressures in the economy remain muted in the period ahead.

The Hungarian economy is expected to recover from recession in 2013. A sustained pick-up in growth is likely to occur from the end of the year as demand in Hungary’s export markets improves. The external balance of the economy remains favourable.

According to the council’s assessment, increased volatility in sentiment in global financial markets and the uncertain outlook for global economic growth continue to pose a risk, which in turn calls for maintaining a cautious approach to policy. In addition, the significant reductions in interest rates so far and the volatile conditions in financial markets may justify changing the pace or extent of policy easing over the coming months.

The central bank will continue its rate cut cycle but the framework for monetary policy will change, portfolio.hu reported, citing governor Gyorgy Matolcsy as saying in a press conference. The framework of monetary policy will be amended and, similarly to the ECB, the Hungarian central bank also intends to give forward guidance based on three factors: medium-term inflation outlook; financial stability considerations and assessment of the real economy. The base rate could be lowered further but in smaller steps, by 10bps instead of 25bps. The bottom of the monetary policy easing could be at 3.00-3.50%.