March 27, 2018 / 12:15 PM / in 6 months

UPDATE 1-Hungarian central bank holds rates, maintains loose monetary policy

* Bank leaves base rate at 0.9 pct as expected

* Overnight deposit and lending rates also unchanged

* Central bank keeps policy loose, inflation below target

* Hungary holds parliamentary election on April 8

* Bank due to release new CPI, GDP forecasts at 1300 GMT

By Krisztina Than

BUDAPEST, March 27 (Reuters) - Hungary’s central bank left its main interest rates unchanged at record lows on Tuesday, as expected, holding onto its unconventional monetary tools aimed at anchoring long-term borrowing costs at historically low levels.

With yields rising in core Western markets and Hungarians voting in a parliamentary election next month, the National Bank of Hungary, one of Central Europe’s most dovish central banks, is staying on the sidelines, analysts said.

“The NBH is likely to refrain from further easing measures in a tightening external yield environment,” said Eszter Gargyan, an analyst at Citigroup in a note. “Election risks rise but chances of change in government remain low without opposition candidates’ electoral cooperation.”

The central bank - run by an ally of right-wing Prime Minister Viktor Orban who is seeking re-election on April 8 - wants to keep borrowing costs low for households and companies for as long as possible.

In a Reuters poll, 17 analysts had unanimously forecast no change in the 0.9 percent base rate at a meeting of the NBH’s Monetary Council on Tuesday. All 15 analysts who submitted a forecast for the overnight deposit rate also predicted no change. The majority of analysts see no change in rates before 2020.

Inflation slowed in February in line with most Central European peers. Analysts in the poll said inflation was unlikely to drift far from 3 percent, the centre of the central bank’s target range, in the next three years.

In contrast to Hungary, central banks in the Czech Republic and Romania have already begun raising interest rates to fight a rebound in inflation.

The NBH is due to release new inflation and economic growth forecasts at 1300 GMT.

It can afford to leave monetary policy loose, because interest rate increases by the U.S. Federal Reserve are unlikely to lead to a big flow of capital out of Hungarian assets, analysts said.

The NBH started buying mortgage bonds earlier this year. It also launched new interest rate swaps for banks with the aim of curbing yields on longer-dated bonds.

The forint traded at 312.80 to the euro on Tuesday after the rate decision, unchanged from levels before the announcement. (Reporting by Krisztina Than; Editing by by David Stamp)

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