Hungary central bank holds rates, sees downward inflation risks

By Krisztina Than

BUDAPEST (Reuters) - The National Bank of Hungary (NBH) left interest rates unchanged on Tuesday, as expected, amid slowing domestic inflation, a worsening euro zone economic outlook and global monetary easing.

The bank affirmed its accommodative monetary stance and also said there were downside risks to the longer-term inflation outlook due to lower-than-expected underlying inflation data at home and a worsening external economic environment.

"The monetary policy stance will continue to be accommodative," the Monetary Council said in a statement.

"Regarding the persistent inflation trends, downside risks have strengthened," it said, adding that data in the second half of the year will be decisive for the assessment of these trends.

The bank will discuss its new quarterly inflation report and economic forecasts at its next rate meeting in September.

The decision to keep the base rate at 0.9% and the overnight deposit rate at -0.05% was in line with the unanimous forecast of analysts in a Reuters poll last week.

Hungary's dovish central bank has said any necessary adjustment of monetary conditions would be implemented through changes in the overnight deposit rate or its tools designed to adjust market liquidity.

However, the bank was under no pressure to act right now. Inflation has slowed, and the economic outlook in the country's main trading partner, Germany, has turned negative.

"Inflation may be still above target, but it is falling back; what is more, the real economic situation is plummeting across the world, prominently in Germany - an important economic partner. The European Central Bank is expected to ease policy substantially in September using depo rate cuts and further QE," Commerzbank said in a note before Tuesday's meeting.

At 1321 GMT, the forint , which has weakened toward 330 to the euro since the July rate meeting, traded at 329.00, a touch weaker from levels of 328.85 just before the bank's comments.

Hungarian core inflation, which reached the top of the NBH's 2% to 4% target range in May, had retreated to 3.7% by July. Last month, the bank said data since its June meeting confirmed its view of an expected decline in inflation from the end of this year.

(Reporting by Krisztina Than and Gergely Szakacs, editing by Larry King and Angus MacSwan)

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