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UPDATE 1-Hungary keeps base rate unchanged at record low, as expected
May 23, 2017 / 12:12 PM / 6 months ago

UPDATE 1-Hungary keeps base rate unchanged at record low, as expected

* Base rate stays at 0.9 pct, in line with expectations

* Forint unchanged after decision

* Bank could ease again if inflation fails to rise -analyst

* Further deposit squeeze could come next month -poll

By Gergely Szakacs

BUDAPEST, May 23 (Reuters) - Hungary’s central bank kept interest rates unchanged as expected on Tuesday, with a jump in economic growth considered unlikely to lift inflation beyond the bank’s 3 percent target level in the foreseeable future.

All 20 participants in a May 15-17 Reuters poll forecast the bank would not change its record-low 0.9 percent base rate.

At 1204 GMT, the forint traded at 308.50 versus the euro, unchanged from its levels before the announcement.

Central banks in the European Union’s eastern wing have kept monetary policy loose for years, with only Czech rate setters signalling a possible change of stance as inflation has risen close to target levels in much of the region since mid-2016.

Hungary’s central bank (NBH), led by Gyorgy Matolcsy - a strong ally of Prime Minister Viktor Orban - has said it will keep interest rates at current lows for a sustained period and loosen monetary conditions further, if necessary.

Analysts said the Hungarian central bank, the most dovish in the region, would not shift to tighter policy or rhetoric any time soon and could squeeze more money out of its three-month deposit facility.

“Whether the central bank announces new measures every month or not, the broad message is clear: NBH remains in ultra-dovish mode, still incrementing the degree of monetary accommodation,” analysts at Commerzbank said in a note.

“If core inflation in Hungary and around the euro zone were to stay below target levels for another quarter, and show no further tendency to accelerate, we think that the NBH will look for fresh unconventional easing tools.”

Hungary’s annual headline inflation was 2.2 percent in April, slowing from 2.7 percent in March. First-quarter economic growth jumped to an annual 4.1 percent from 1.6 percent in the fourth quarter.

With the bank ruling out further cuts in its main policy rate, reducing the stock of its three-month deposits and currency swap deals have emerged as key tools to curb market interest rates and so make bank loans cheaper for Hungarians.

$1 = 274.28 forints Reporting by Gergely Szakacs; editing by John Stonestreet

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