Hungary's central bank MNB cut its main interest rate to a record low of 1.95 percent on Tuesday, the first reduction in eight months, in a move seen as staving off further deflation.
The MNB's rate-setting Monetary Council cut the benchmark rate by 15 basis points from 2.10 percent, the first drop since last July when it ended a two-year-long easing cycle aimed at boosting growth that brought the rate down from 7.0 percent.
A cut was expected by analysts due to Hungary's inflation rate, which has dipped under zero to record lows in recent months, mainly due to government-mandated cuts in household utility prices and low fuel prices.
In February the inflation rate rose to minus 1.0 percent, up from minus 1.4 the previous month, but well below the MNB's medium-term target of 3.0 percent.
The national currency, the forint, meanwhile has been strengthening against the euro since January, a factor analysts say can also slow inflation as well as curb growth.
In a statement after the announcement the Monetary Council said the low inflation environment is "likely to persist for a sustained period".
"Maintaining loose monetary conditions for an extended period is warranted by the medium-term achievement of the Bank’s inflation target and a corresponding degree of support to the real economy," it said.
Most analysts said Tuesday's rate cut pointed to similar modest reductions in coming months.
"The decision was clearly a response to the economy falling further into deflation than the National Bank had anticipated," William Jackson of London-based analysts Capital Economics commented after the decision.
"Irrespective of whether interest rates are lowered further or not, weak inflation will allow monetary policy to stay loose for the foreseeable future," he said in a note to investors.