The decision of Hungary's central bank to cut the base interest rate by 20bps to a new historic low of 3% at its meeting on December 17 was approved with the votes of seven members of the Monetary Council , minutes from the session showed. There were two votes in support of a 10bps rate cut. The central bank slowed the pace of the rate cutting cycle already in August 2013 , as it reduced the base rate by 25bps in each of the preceding twelve months. At the December meeting, central bankers agreed that low underlying inflation reflected the combined effect of weak domestic demand, declining inflationary pressures in external markets and the gradual adjustment of inflation expectations. In addition to the decline in underlying inflation, the reductions in regulated prices, implemented in a series of steps this year, had also contributed significantly to the development of a low inflation environment. The bankers expect inflationary pressures to remain muted in mid-term. The MC members believe that Hungarian economic growth would continue in a more balanced pattern. Foreign demand will continue to be a key growth driver but domestic demand is expected to recover, on the back of higher investment activity. However, households' consumption was likely to grow only gradually, even despite the increase in real income. The rate setters agreed that the global financial environment remained supportive on the whole, but volatile sentiment in global financial markets warranted for more cautious approach to monetary policy. At the end, the rate setters concluded that further cautious easing of monetary conditions might follow, considering the outlook for inflation and the real economy and taking into account perceptions of the risks associated with the economy. They agreed that the pace of monetary easing could be slowed down.
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