April 24, 2018 / 12:05 PM / a year ago

UPDATE 1-Hungary keeps rates at rock bottom to fuel lending boom

(Adds detail, analyst comment)

* Base rate, overnight deposit rate remain at record lows

* No hike expected before European Central Bank lifts rates

* Top c.banker has urged banks to lend more to bolster growth

* C.bank sees big slowdown in economic growth in next two years

BUDAPEST, April 24 (Reuters) - Hungary’s central bank kept its main interest rates at record lows on Tuesday, as expected, looking to boost economic growth with a flood of cheap credit as inflation remains well below its policy target.

One of central Europe’s most dovish central banks kept its base rate at 0.9 percent and the overnight deposit rate at -0.15 percent, both in line with the unanimous forecasts of analysts in a Reuters poll.

In the April 16-18 survey, economists said the bank could start to increase interest rates only after the European Central Bank tightens its own policy, expected in 2019 or if inflation rises significantly.

“The broad economic environment has not changed much. Inflation has been a tad below expectations, but this should only reinforce the stance that loose monetary policy can continue,” said analyst Sandor Jobbagy at CIB Bank.

“The conduct of the ECB will be crucial, but there has not been any new information from that front, which would nudge the Hungarian central bank towards a change in policy.”

Annual headline inflation ran at 2 percent in March, below the bank’s 3 percent policy target, which has a tolerance band of a percentage point on both sides. It expects inflation to reach its target in a sustainable way by the middle of 2019.

Having cut borrowing costs to record lows, central bank Deputy Governor Marton Nagy urged banks last week to lend even more to sustain the pace of economic growth, which rose to a three-year-high of 4 percent last year.

Nagy told a conference that corporate lending growth could rise to an annual 10-15 percent, while growth in household lending should be even faster, and this should go together with a rise in wages.

“In emphasising the need for easier lending conditions, the speech reiterated the dovish outlook of the (central bank),” analysts at Goldman Sachs said.

Prime Minister Viktor Orban, re-elected for another four years in a landslide earlier this month, has said his government would aim to maintain at least 4 percent economic growth in the coming years.

That will require some new impetus, as the central bank’s latest projections showed growth slowing substantially in the next two years due to lower spending from European Union funds and as the government’s fiscal stimulus runs out.

Analysts expect the base rate to remain on hold at least until 2020. (Reporting by Gergely Szakacs Editing by Catherine Evans)

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