July 26, 2016 / 12:06 PM / 3 years ago

UPDATE 1-Hungary central bank holds base rate at record-low

* Base rate steady at 0.9 pct, in line with expectations

* Overnight deposit/lending rates also unchanged

* Bank easing monetary conditions via liquidity measures

* Forint a touch stronger, policy statement due at 1300 GMT

BUDAPEST, July 26 (Reuters) - The National Bank of Hungary left its base rate on hold at 0.9 percent on Tuesday, in line with expectations, with its focus now geared towards squeezing funds out of its main liquidity instrument to loosen monetary conditions further.

The decision was in line with the unanimous forecast of all 17 analysts in a July 18-20 Reuters poll, after the bank — led by Governor Gyorgy Matolcsy, a strong ally of Prime Minister Viktor Orban — had flagged an end to rate cuts in May.

The bank also left its overnight deposit and lending rates unchanged at minus 0.05 percent and 1.15 percent, respectively.

At 1200 GMT, the forint traded at 313.05 versus the euro, a tad stronger than 313.20 just before the announcement. The Monetary Council will publish a policy statement at 1300 GMT.

With inflation hovering around zero, the bank has slashed the base rate from a 2012 peak of 7 percent and launched a massive monetary stimulus programme to support government efforts to boost economic growth.

Having finished its latest rate cut cycle, the bank announced steps earlier this month aimed at nudging banks to offer cheaper loans to households and companies and to buy government debt.

As of next month, tenders for the central bank’s three-month deposits will be held monthly rather than each week, and from Oct. 26 the bank will impose restrictions on the amount of funds banks can deposit.

“Due to the transformation of the three-month deposit facility ... the central bank will be able to loosen monetary conditions without lowering the base rate,” analysts at local savings and loans group Takarekbank said in a note.

“Therefore, the importance of the tools defining the interest rate corridor (overnight deposit and overnight lending) will gradually increase through October in relation to the base rate,” the analysts said.

Short-term government debt yields have plunged as a result of the new measure, with three-month treasury bills sold at 0.53 percent at Tuesday’s auction, well below the central bank’s base rate.

Analysts expect the Hungarian base rate to remain unchanged until the end of 2017, inching up to 1.25 percent by the end of the 2018 election year. (Reporting by Gergely Szakacs; Editing by Catherine Evans)

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