(Updates with policy statement, analyst comment, market reaction)
* Base rate 0.9%, overnight depo rate -0.05%
* Decision in line with analysts’ forecasts
* Forint stronger on the day but still near Sept record lows
* Weakening European activity to curb inflation pressure - cbank
By Gergely Szakacs
BUDAPEST, Nov 19 (Reuters) - The National Bank of Hungary (NBH) left interest rates unchanged on Tuesday as expected, ignoring renewed weakening in the forint towards record lows and a rise in inflation to near the top of the central bank’s target range.
The central bank held its base rate at 0.9% and the overnight deposit rate at -0.05%, in line with the unanimous forecast of analysts in a Reuters poll, which foresaw no change in official rates before 2021.
The bank maintained its accommodative policy stance and reiterated its view that dampening European economic activity would keep a lid on domestic price pressures.
“The effects of the slowdown in European economic activity indicate a strengthening in downside risks to the longer-term outlook for inflation,” it said in a policy statement.
“Future developments in the outlook for inflation will be a decisive factor in the necessity of further measures,” it said, adding that its bond purchase scheme designed to provide cheap long-term funding to companies may be exhausted by early 2020.
The Hungarian forint, central Europe’s worst- performing currency with a 4% loss versus the euro in 2019, reversed its late-October rally this month, and is again trading within sight of its September record lows at 336 per euro.
At 1420 GMT, it traded at 334.75 against the euro, a touch stronger on the day and versus the 335.05 per euro seen before the bank announced its rate decision at 1300 GMT.
The bank is targeting 3% inflation with a tolerance range of a percentage point on either side. Tax-adjusted core inflation, its preferred measure of lasting price trends, rose to 3.7% in October from 3.4% in September.
“In the coming months, core inflation excluding indirect tax effects is expected to remain close to its current level, before decreasing gradually to 3% from the beginning of the next year, due to external disinflationary effects,” the central bank said.
Economists at Commerzbank have said the NBH’s loose policy, combined with Hungary’s inflation rates, pose the risk of a possible inflation overshoot, which could weigh on the forint.
The central bank has said it was in a “data-driven mode” and any necessary adjustment of monetary conditions would be made through changes in its overnight deposit rate or tools designed to adjust market liquidity.
The bank will discuss its fresh inflation report and forecasts next month.
“We think that inflation will rise back above target by early 2020... but this probably won’t be enough to force a shift in the (NBH’s) stance towards tightening,” Capital Economics analyst Liam Peach said in a note.
“Further out, though, we think that rising price pressures and a weaker forint will bring tightening onto the agenda.” (Additional reporting by Marton Dunai; Editing by Larry King and Jan Harvey)