(Adds central bank comments and new analyst, updates forint)
* Bank leaves base rate at 0.9 pct as expected
* Overnight deposit and lending rates also unchanged
* Central bank in easing mode, inflation below target
* Bucking global tightening trend
* Says will monitor relative position of HUF yields to euro zone
By Krisztina Than
BUDAPEST, Jan 30 (Reuters) - Hungary’s central bank left its main interest rates unchanged at record lows on Tuesday, as expected, holding on to its set of unconventional tools aimed at curbing long-term interest rates and pushing down yields.
The National Bank of Hungary, Central Europe’s most dovish central bank, has said it would start buying mortgage bonds in 2018. It also launched new interest rate swaps for banks with the aim of curbing yields on longer-dated bonds.
The bank, which is run by a strong ally of right-wing Prime Minister Viktor Orban who is seeking re-election on April 8, wants to keep borrowing costs low for as long as possible.
The rate-setting Monetary Council said in a statement that it would “ensure the persistence of loose monetary conditions over a prolonged period by using the extended set of monetary policy instruments”.
It noted that Hungarian long-term government bond yields had fallen significantly over the past few months and spreads relative to the euro zone and regional yields had narrowed.
“The Monetary Council focuses on the relative position of domestic long-term yields relative to international yields when evaluating the (its) programme,” the Council added.
Some analysts said this could allow the bank to fine-tune its new tools if needed, and prevent a weakening of the forint, if a global tightening by central banks gathers speed.
“With this a sudden forint weakening can be avoided,” Equilor, a brokerage, said in a note.
The ECB confirmed last week it would continue buying bonds at least until September, and for as long as inflation is below its target. It also pledged to keep interest rates at their current, ultra-low levels for long after those purchases stop.
The Hungarian bank is bucking a global trend of rising interest rates, without worrying about inflation, which was running at 2.1 percent in December, well below its target.
“The central bank has already been very successful in flattening the curve and it will continue to do so using any means possible in order to keep rates low going into the election,” said Jan Dehn, head of research at Ashmore, an investment management company.
“The main risk is inflation, either in Hungary or in Europe or both. Inflation would push up core European bond yields and Hungarian bond yields.”
The first of the new 5-year and 10-year IRS auctions in mid-January led to a rebound in bond yields in the market because the offered amounts and yield spreads disappointed some investors. This prompted the bank to tweak the IRS.
However, tracking a rise in core market yields and German yields, Hungarian government bond yields - especially on the 5-year and 10-year papers - have been rising for the past week.
The forint traded at 310.00 at 1432 GMT, a shade firmer from levels of 310.30 before the rate announcement.
The decision to keep the base rate at 0.9 percent was in line with analysts’ projection in a Reuters poll. The bank is expected to keep its base rate on hold at least until the end of 2019. (Reporting by Krisztina Than; Editing by Andrew Heavens and Gareth Jones)