April 30, 2019 / 12:07 PM / 4 months ago

UPDATE 2-Hungary leaves rates unchanged, defying higher prices

(Updates with policy statement, market reaction, analyst comments)

* Base rate 0.9 pct, overnight depo rate -0.05 pct

* In line with unanimous analyst forecasts

* Spate of strong econ data since March meeting

* Bank reiterates accommodative policy stance

* Bank may act in June if CPI rises further -analyst

By Gergely Szakacs and Sandor Peto

BUDAPEST, April 30 (Reuters) - The National Bank of Hungary left interest rates unchanged and reiterated its accommodative policy stance on Tuesday although economists project a slow increase in official rates this year and next because of strong domestic inflation.

The bank left its base rate at 0.9 percent and the overnight deposit rate at -0.05 percent, in line with the unanimous forecast of analysts in a Reuters poll last week.

“The outlook for world economic activity and inflation continues to be moderate,” the rate-setting Monetary Council said in a post-meeting statement. “Monetary policies across the world’s leading central banks remain cautious.”

“The monetary policy stance will continue to be accommodative,” it added, sticking to its dovish language despite some analysts saying that approach could put pressure on the forint with inflation running at a more than six-year-high.

At 1316 GMT, the forint traded at 323.48 versus the euro, down from 323 per euro before the rate decision. The currency is trading near three-and-a-half-month lows, weakening since the bank’s March policy meeting.

At that meeting, the bank raised its overnight deposit rate by 10 basis points, halting nearly seven years of monetary easing, after inflation rose to near the top of its 2-4 percent target range.

But it said the move was a one-off, rather than the start of a cycle, since a global economic slowdown could curb inflation. It also said any policy change would hinge on its quarterly inflation reports. The next is due in June.

“Given that the statement did not contain any reference to further monetary tightening in the near term in response to strong inflationary pressure, the forint started to weaken following the publication,” analysts at brokerage Equilor said.

Data published since the bank’s March policy meeting showed continued strength in domestic price pressures.

March core inflation rose to 3.8 percent, the highest since December 2012. February gross wages increased by 12.1 percent, while retail sales grew by 8.4 percent from a year ago.

Analysts polled by Reuters expect the overnight deposit rate to rise to 0.1 percent by the end of 2019. The base rate is forecast to remain unchanged but rise to 1.25 percent next year and 1.55 percent by the end of 2021.

“Should inflation increase further in the coming months, parallel with the publication of its updated (economic) forecasts, the central bank may announce further (policy) normalisation steps in June,” analysts at CIB Bank said. (Reporting by Gergely Szakacs and Sandor Peto, editing by Larry King and Kirsten Donovan)

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