(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 cycle
* With rates near zero, Czechs look to interventions
By Michael Winfrey
PRAGUE, Dec 11 (Reuters) - 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.
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 disinflation trend.” (Reporting by Michael Winfrey. Editing by Jeremy Gaunt.)