UPDATE 1-IMF approves 1.4 billion euro tranche for Hungary

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WASHINGTON, June 23 (Reuters) - The International Monetary Fund on Tuesday agreed to disburse the next tranche of 1.4 billion euros ($1.9 billion) to Hungary under an IMF loan deal to help the country weather the financial crisis.

The IMF disbursement brings to 8.4 billion euros the amount paid out under the 11.7 billion euro loan program agreed with Hungary on Nov. 6, 2008.

IMF First Deputy Managing Director John Lipsky said a further strengthening in investor confidence and easing of financial strains would create room for interest rate cuts in Hungary.

"Monetary and exchange rate policy will continue to target inflation over the medium term, while being prepared to act as needed to mitigate risks to financial stability and avoid risks to destabilizing the exchange rate," Lipsky said in a statement.

He said Hungary should be prepared to mitigate risks to financial stability and avoid disruption in its foreign exchange.

Meanwhile, the IMF said it had suggested that Hungary strengthen bank resolution frameworks.

"The prompt implementation of the authorities' revised program to preserve financial stability, including the careful monitoring of banks that receive government financial support and strengthening bank supervision, are important steps," he said.

"It is recommended that the authorities explore institutional arrangements that would provide the financial supervisory agency with the necessary regulatory powers, and that remedial action and bank resolution frameworks be quickly strengthened," he added.

(Reporting by Lesley Wroughton; Editing by Diane Craft)