August 21, 2018 / 12:10 PM / 5 months ago

UPDATE 1-Hungary's central bank keeps rates on hold, ignores inflation

* Bank kept base rate at 0.9 percent

* Overnight deposit rate also unchanged at -0.15 pct

* Inflation picked up but running around bank’s target

* First rate hike seen only in 2019 - poll

* Statement due at 1300 GMT

By Krisztina Than

BUDAPEST, Aug 21 (Reuters) - Hungary’s central bank left all its interest rates unchanged at record lows on Tuesday, as expected, ignoring a rise in inflation and a broader market selloff on Turkey’s currency crisis.

The National Bank of Hungary, which has made a series of rate cuts and introduced unconventional policies in the past years, faced its first significant test from financial markets last month as global rates rose and emerging markets sold off.

That sell-off sent the forint to all-time lows past 330 versus the euro in early July. However, the bank stuck with its dovish stance and global sentiment improved.

Investors again sold off the forint and its regional peers in the past week, along with a plunge of Turkey’s lira.

On Tuesday the forint traded around 323 to the euro, well off its July lows. A weaker dollar helped Central Europe’s currencies.

“We expect the NBH to take comfort in the recent stabilization in the markets and avoid shifting the language, instead once again reiterating its dovish stance,” Barclays said in a note.

Hungary’s foreign currency debt has fallen in recent years, making it less vulnerable to external disruption than other emerging markets, the central bank’s deputy governor, Marton Nagy, said on Friday.

Analysts said the Sept. 18 rate meeting could be more interesting, because the NBH will publish its latest inflation report and forecasts then.

A Reuters poll last week forecast no change in either the Hungarian base rate or the overnight rate this year — even though the Czech and Romanian central banks have already been raising interest rates.

Some analysts expect a gradual rise in Hungarian rates from next year, around the time the European Central Bank is expected to start raising its own rates.

The bank said the ECB’s decisions could have a significant influence on its policy.

With inflation still running around its 3 percent target, the NBH wants to keep borrowing costs low for households and companies.

Annual inflation rose to a 5 1/2-year high of 3.4 percent in July, but was still within the tolerance range around the target. The bank targets 3 percent inflation, plus or minus one percentage point.

Some analysts have said it might start tightening policy first by withdrawing liquidity from the interbank market, via its swap tools, rather than by raising rates.

Reporting by Krisztina Than, editing by Larry King

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