October 24, 2017 / 12:05 PM / a year ago

UPDATE 1-Hungary keeps rates steady, no easing expected for now

* Base rate, overnight lending rates unchanged

* Forint steady after gains over the past week

* Central bank to maintain dovish bias -analysts

BUDAPEST, Oct 24 (Reuters) - Hungary’s central bank left interest rates on hold at record lows on Tuesday, in line with analysts’ forecasts, having effectively eased policy in recent weeks by boosting liquidity.

Last month, central Europe’s most dovish central bank cut its deposit rate by 10 basis points to -0.15 percent, and it has increased liquidity in forint markets via its forex swap tenders. The bank has said it was ready to loosen policy further with unconventional tools to drive yields on longer-dated government bonds lower.

By keeping interest rates at record lows for as long as possible, the central bank is hoping to encourage mortgage borrowers to opt for fixed-rate loans.

An Oct. 16-19 Reuters poll of analysts suggested the bank would keep both its 0.9-percent base rate and the overnight deposit rate on hold.

Central bank officials however have flagged possible further easing, in comments which traders believed were partially aimed at stemming a strengthening of the forint, which scaled a five-week-high last week.

At 1201 GMT, it traded at 308.64 per euro, unchanged from levels before the announcement.

It may remain strong because the European Central Bank, which meets two days after the National Bank of Hungary, looks unlikely to shift quickly to a hawkish policy that could make Central European currencies less attractive.

“Some quantitative easing measures such as the volume of swap auctions, which aim to cap long-term interest rates, could be further expanded during the course of Q4,” analysts at Commerzbank said in a note.

“But we do not expect concrete announcements – rather, NBH is likely to just reiterate that it will expand unconventional measures as necessary to maintain easy monetary conditions.”

The analysts said recent rises in core inflation, which accelerated to 2.9 percent last month, have probably eased pressure on the central bank to take imminent further steps.

The Monetary Council will publish a statement at 1300 GMT.

“The central bank will likely maintain a dovish bias in its statement. For now unconventional easing will continue via the FX swaps providing HUF liquidity and reduction in access to the 3m deposit facility,” analysts at Bank of America Merrill Lynch said.

Some analysts said the central bank could cut its overnight deposit rate further, although only later this year.

For a recent analysis on monetary policy in Central Europe, click on: (Reporting by Gergely Szakacs; Editing by Hugh Lawson)

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