(Changes Hungary expected to cut to 5.75 pct)
* Domestic demand hit by Euro crisis, austerity
* Decline undercuts growth, CPI, opens way for more easing
* Poland "very likely" to ease soon, Hungary seen continuing
* With rates near zero, Czechs look to interventions
By Michael Winfrey
PRAGUE, Dec 11 Belt tightening by recession-hit
consumers in the European Union's eastern wing has put paid to
fears of runaway price growth, opening the way for quicker
monetary easing by most of the region's central banks.
Polish, Hungarian and Czech rate setters have already eased
policy in the hope of spurring domestic spending. But arguments
are building that they can afford to take more decisive action.
Specifically, the one-two punch of the euro zone crisis and
government austerity measures have smothered the region's main
economic drivers by sapping export demand, undercutting wages,
raising unemployment, and causing consumers to tighten spending.
One result: less price pressure.
Slow to follow their regional peers this autumn, Poland's
central bank now looks more ready than ever to push on with more
easing after it cut by a quarter point in both of the last two
months to 4.25 percent.
Governor Marek Belka said on Tuesday the region's largest
economy was "very likely" to cut interest rates further because
the mix of monetary and fiscal policy was too restrictive.
"We expect headline inflation to go down quite significantly
in the coming months and in a sustainable way," he told
reporters on the sidelines of a banking conference in Doha.
He was echoed by fellow Monetary Policy Council member Anna
Zielinska-Glebocka, who said she saw a full percentage point of
cuts in this monetary cycle.
The Polish comments followed weaker-than-expected growth and
price figures across the region that have underscored how
government belt-tightening aimed at trimming budget deficits to
below the EU's prescribed ceiling of 3 percent of gross domestic
product have hammered domestic demand.
Inflation data released on Monday and Tuesday showed
consumer prices in Hungary, the Czech Republic and Romania all
slowed more than expected in November.
Analysts expect Poland's data, due out on Thursday, to show
November inflation at 2.9 percent, a deep slide from October's
two-year low of 3.4 percent.
That would mesh with a deeper-than-expected growth slowdown.
A flash estimate has shown Polish growth slowed to just 1.4
percent in the third quarter, its lowest point since the peak of
the 2008-2010 economic crisis.
LOW DEMAND TRUMPS PRICES
In Hungary, four rate setters on the central bank's board
who support the pro-growth policies pursued by Prime Minister
Viktor Orban's government have outvoted Governor Andras Simor
and his two deputies to cut rates four times in as many months.
Having ignored Simor's warnings that monetary easing can
spur inflation and undercut the forint, they are likely to gain
confidence after inflation fell to 5.2 percent in November, its
lowest point in 11 months.
Analysts said they expected a fifth consecutive cut to 5.75
percent at the bank's next monetary sitting on Dec. 18.
"It is likely that this figure will provide yet another
reason for the dovish members on the Monetary Council to
continue cutting interest rates this month," said Orsolya
Nyeste, an analyst at Erste Bank.
Hungary's statistics office said the weaker data was due to
a steep decline in fuel prices and because weak consumer demand
had eliminated the impact of rising producer prices.
Just how great that effect has been was made clear in third
quarter growth data released last week, which showed household
consumption plunging 3.9 percent on an annual basis, wiping out
the positive effect of growth in the dominant export sector.
Nowhere has the impact of falling domestic demand been more
evident, meanwhile, than in the Czech Republic, where the
government has cut spending and hiked taxes despite evidence
that the measures have helped extend its economy's longest
contraction in 15 years.
Third quarter growth data there showed household consumption
falling 1.3 percent on a quarterly basis.
The austerity measures have shown up in inflation as well.
Data on Monday showed consumer prices fell 0.2 percent from
October to November, putting the annual rate at 2.7 percent,
below both analysts' and the central bank's forecasts.
The Czech central bank has cut interest rates to close to
zero -- 0.05 percent -- and has said it will now engage in
market interventions to knock the crown currency weaker if it
needs to ease further. Analysts see that as a probability.
"We think the Czech National Bank will be ready to loosen
monetary policy further at its Dec. 19 MPC meeting," Barclays
Capital wrote in a report.
"With the CNB policy rate at technically zero, the bank will
have to turn to other tools to loosen monetary policy."
Only in Romania have policymakers have held tight for fear
of undercutting the flagging leu currency ahead of an election
held last weekend.
The leftist Socialist Liberal Union won a convincing
majority and must now form a government and try to renew IMF-led
funding to help backstop the recession-hit economy.
But analysts do not expect their victory to lead to monetary
easing soon, despite data showing inflation slowed to 4.6
percent in October, from October's 5 percent.
The figure is still well above the central bank's target,
and economists said a hike in excise taxes next year would push
prices higher again.
"Interest rates will remain flat at least in the first half
of next year," said Georgiana Constantinescu, an economist at
Credit Europe Bank. "There might be room for a 25 basis points
cut in the second half if we will see an acceleration of the
(Reporting by Michael Winfrey. Editing by Jeremy Gaunt.)