* Imported inflation expected to remain low -deputy governor
* Forint swings over longer recent period not extreme
* Econ ministry official warns on real interest rates
(Adds economy ministry comment, forint)
By Krisztina Than and Gergely Szakacs
BUDAPEST, March 6 A top Hungarian central banker
painted a dovish picture of the inflation outlook on Thursday,
before a report due later this month that the bank says will
define whether it can keep cutting interest rates.
The bank has pursued monthly cuts taking its benchmark rate
to 2.7 percent from a 2012 peak of 7 percent to spur
economic recovery, but economists and some government officials
have warned that further rate cuts could be risky given global
market concerns about emerging economies.
The forint had weakened to two-year lows of 314
to the euro earlier this year as investors, spooked by the turn
in U.S. monetary policy, grew wary about Hungary, still the most
indebted state in central Europe. The forint has since recovered
to trade at around 309.20 on Thursday, but remains fragile.
Central bank Deputy Governor Adam Balog said on Thursday:
"Considering the recent longer period, we (in terms of the
forint) have not been much of an outlier in the region."
He told a conference of business website Portfolio.hu that
Hungary's economic fundamentals have not changed much since the
bank's last inflation report in December. But he said recent
inflation data were a surprise to the bank as well. Hungary's
annual inflation slowed to zero in January, on the back of
government-imposed energy price cuts.
Balog said imported inflation was expected to remain low in
the longer term as well, while domestic inflationary
expectations - which had been traditionally high and sticky in
Hungary, especially in the 1990s - have moderated.
Balog also said Hungary's vulnerability has decreased
because its net financing position had improved.
Investors are watching closely the bank's next rate setting
meeting on March 25. The bank has said it would decide "on the
need and possibility for continuing the easing cycle" in March
in light of its new inflation report.
Seven of its policy makers voted last month to cut the base
rate by 15 basis points to a new low of 2.7 percent,
while two members voted for keeping rates on hold.
The bank cut rates in February despite the market flight
from riskier assets as the Federal Reserve reduces its flow of
Hungary is seen vulnerable to sudden shifts in investor
sentiment because it is heavily reliant on foreign funding, even
though its budget deficit is relatively low and it runs a big
current account surplus.
On Thursday, a senior economy ministry official warned that
Hungarian real interest rates should not sink to levels that no
longer support the economic policies of the government.
"There is pressure on real interest rates across the world
and we cannot separate ourselves from this," Economy Ministry
State Secretary Gabor Orban told the same conference.
"There is a level of real interest rates, which no longer
supports the government's economic policies," he said. "The
Monetary Council is also aware of this and I am certain that
this (factor) is part of their consideration."
In February the bank had ignored a similar comment by
Economy Minister Mihaly Varga who said interest rates were "less
appealing to investors" who buy Hungary's debt.
(Reporting by Krisztina Than and Gergely Szakacs; Editing by