UPDATE 1-Hungary can cut rates once or twice more -central banker Balog

Mon Jul 14, 2014 4:00am EDT

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(Adds comments on forex loans)

BUDAPEST, July 14 (Reuters) - Hungary's central bank still has room for one or two reductions in its base rate from a record low 2.3 percent, Deputy Governor Adam Balog was quoted as saying on Monday.

The Monetary Council next meets to set interest rates on July 22. With inflation running at historic lows, it has lowered the benchmark from a mid-2012 peak of 7 percent in monthly steps to help recovery.

"At this moment I see room for one or two more reductions and that is by and large what is needed for the National Bank of Hungary to achieve its primary objective over the medium term, reaching and maintaining 3 percent inflation," Balog was quoted as saying in an interview with the business newspaper Napi Gazdasag.

Balog also said the government's relief programme for foreign currency borrowers would have no direct impact on rate policy over the next month or two.

When asked about Hungary's plans to convert households' foreign-currency mortgages into forints, possibly sometime after September, Balog said any solution should be cautious to avoid causing turbulence in financial markets.

He said careful analysis was required to assess how much of Hungary's foreign-currency reserves, which stood at 36 billion euros at the end of June, the central bank could devote to a comprehensive solution.

"The current level of reserves can be considered high, therefore the central bank can help in the conversion," Balog said. "However, right now I think that the central bank cannot manage the conversion of the entire stock of loans involved."

Balog said a one-off conversion of household foreign- currency mortgages and home-equity loans could eat up about a third of the bank's hard currency reserves. (Reporting by Gergely Szakacs; Editing by Eric Meijer, Larry King)

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