Hungary's central bank cut its benchmark base rate by another 25 basis points to 5.50 percent, as expected, and said it would provide details of its decision later.
The National Bank of Hungary cut its rate by 125 basis points in 2012 and said last month that it would consider further rate cuts but only if sentiment in financial markets continued to improve and there was evidence that the inflation target was achievable.
In December Hungary's inflation rate fell to 5.0 percent in December from 5.2 percent in November, still considerably above the bank's 3.0 percent inflation target.
Hungary's Gross Domestic Product contracted by 0.2 percent in the third quarter from the second quarter, the third quarterly contraction, pushing down the annual rate of shrinkage to 1.5 percent from the second quarter's 1.3 percent drop and the first quarter's 1.2 percent contraction.
The recession and high level of excess capacity is expected to keep downward pressure on inflation.