* Key base rate on hold, in line with expectations
* Central bank stays vigilant -analyst
* C.bank says would raise rate only as last resort
(Adds new comments, details)
By Gergely Szakacs and Marton Dunai
BUDAPEST, Sept 27 (Reuters) - Hungary's central bank warned on Monday it might raise interest rates if investors' attitude to the country worsened, but said details of the 2011 budget expected within weeks could help quell such a risk.
As expected, the bank left its base rate
A rate hike, which appeared among the options last month, was not discussed this time as the government's pledge to cut the budget deficit next year calmed former supporters of a rise, NBH governor Andras Simor told a news conference.
But the bank may still need to raise rates if fiscal policy disappoints, the country's risk assessment worsens for any other reason or inflation risks materialise, the bank said.
"If upside risks to inflation materialise or there is an increase once again in perceptions of the risks associated with the economy, it may be necessary to raise the central bank base rate," the Monetary Council said in a statement.
"...we also need to add that this (the budget announcement) alone did not improve Hungary's risk assessment relative to a month earlier. What it achieved is that it did not deteriorate from the past month," Simor said.
"The market will be able to assess the strength of this announcement or the true value of it when the 2011 budget sees the light of day and the measures leading to the 3 percent (of GDP) deficit (in 2011) will become clear," he added.
The budget announcement lifted local markets in the past weeks. The forint
Simor himself proposed a rate hike in August but was voted down by the majority in the 7-member Monetary Council.
NBH policymakers are under attack from a new government that has broken off aid talks with the International Monetary Fund and shaken up investor sentiment toward Hungary. The bank last cut rates by 25 basis points in April.
Simor said the bank wanted to aid economic recovery and "would only resort to raising the interest rate when there are no other methods available", but rate setters still needed to see improvement in the country's risk assessment. The NBH said in a statement that inflation could ease towards its 3 percent goal as domestic demand remained weak.
August inflation figures met its expectations, but food prices and medium-term upward pressure on corporate costs still represented upside inflation risks, and inflation expectations in the economy were not well enough anchored, the bank added.
ELECTIONS FIRST
The bank had warned after its August rate meeting that it might need to raise rates if upside inflation risks persisted or Hungary's risk assessment deteriorated. [ID:nLDE67M12T]
Since then the new Fidesz government, under pressure from the European Union, has pledged to cut the 2011 budget deficit below 3 percent of gross domestic product (GDP).
Details of the budget, and a view of its credibility, are likely only after municipal elections on Oct. 3.
Analysts said a rate rise remained possible as markets remained vulnerable to any negative shift in global market sentiment and the government needed to do more to win the confidence of investors.
"All players are focusing on October's events, when the promised government announcements on the 2011 budget details will clarify the risk assessment that Hungary could expect in the last quarter of 2010," said CIB Bank analyst Gyorgy Barta.
"The meeting did nothing to alter our view that all depends now on fiscal announcements and, to a somewhat smaller extent, on the evolution of global risk sentiment," Barta added. (Writing by Krisztina Than and Patrick Graham, editing by Tim Pearce)