The MNB’s Monetary Council cut the prime interest rate four times prior to Monday’s cut. In January it lowered the prime rate by 50 basis points to 9%, in February by 75 basis points to 8.25%, in March by 50 basis points to 7.75% and in April by 25 basis points to 7.5%.

The central bank also forecasts lower rate of annual inflation than previously. It lowered its annual inflation forecast at the end of the year to 3.3%, down from 3.6% expected previously. By December 2006 the MNB anticipates inflation rate to fall to 3.2%.

“The fall of the inflation rate is supported by several macroeconomic processes. Companies’ wage policies follow the trend of falling inflation, while elements of the core inflation generally show a falling trend,” said the MNB in a release. “Besides the long-term processes, falling inflation is also strengthened by increased competition of import goods due to Hungary’s EU accession,” the central bank added.

The MNB’s Monetary Council said it expects the fall of the inflation rate to continue and the generally low rate of inflation to prevail in the next 18 months. The inflation rate is also expected to fall as production capacities are being increased in line with the growth of demand.