* 3-month BUBOR could stay at current level until early 2019
* Downward risks to inflation have increased - Nagy
* Euro zone inflation below expectations in Sept
By Krisztina Than
BUDAPEST, Oct 13 (Reuters) - Hungary’s base interest rate will stay unchanged at 0.9 percent until at least 2020, central bank deputy governor Marton Nagy said on Friday, adding that downward risks to inflation had increased.
The National Bank of Hungary, the most dovish in central Europe, cut its overnight deposit rate in September and announced more steps to ease monetary conditions. The bank also said it was ready to loosen policy further with unconventional tools in order to drive yields on longer-dated government bond lower.
Driving down long yields is a key part of a plan by the central bank to shift more housing loans into fixed-rate loans.
Nagy said the 3-month BUBOR interbank market rate, which the bank watches very closely, could stay at its current level of 0.03 percent until the beginning of 2019.
“The real interest rate (adjusted for inflation) ... could stay negative for the next seven years,” he said.
Nagy told reporters that downward risks to inflation in Hungary had increased since September.
Headline annual inflation at 2.5 percent in September was below the central bank’s expectation and inflation was expected to drop to around 2 percent by the end of the year before resuming a rising trend in 2018.
“It seems downward risks are strengthening,” Nagy said, adding this was due in part to lower-than-expected inflation in the euro zone.
He said inflation could reach the bank’s target of 3 percent by mid-2019. (Reporting by Krisztina Than; editing by John Stonestreet)