* Hungary cbank keeps rates on hold at 5.25 pct
* Global and inflation risks key factors in decision-cbank
* Rate cuts may resume if risk perception, CPI allow-NBH
(Adds cbank comments, markets)
By Gergely Szakacs and Sandor Peto
BUDAPEST, May 31 (Reuters) - Hungary's central bank kept its
main interest rate
The bank has cut rates by a combined 425 basis points since July to help the recession-hit economy return to growth, mindful of a crisis of confidence on its currency and bond markets that drove it to seek an IMF-led bailout in 2008.
A negative shift in global sentiment over euro zone debt woes, a deterioration in the risk assessment of Hungarian assets, inflation risks and uncertainty over the new Hungarian government's fiscal policy have made the bank cautious.
"In light of increased perceptions of risk associated with Hungarian financial assets and inflation risks, the Monetary Council has decided to leave interest unchanged," the rate setting panel said in a statement.
But it left the window open for more easing.
"Interest rates may only be reduced further if the outlook for inflation as well as perceptions of risk allow," it added.
The decision to pause was in line with the majority of
analysts in a Reuters poll
The currency has weakened 4 percent since the last meeting while government bond yields are 70-100 basis points up from multi-year lows hit last month.
Analysts see the base rate at 5.0 percent at the end of this year.
Governor Andras Simor told a news conference the decision had a "convincing majority" in the 7-member Council, which discussed two options: holding rates and cutting by a further 25 basis points.
UNCERTAINTY
The bank revised its price forecasts upwards for both 2010 and 2011 in its inflation report and expected inflation to fall to around its 3 percent target in the first half of 2011. [ID:nBUS002139]
It also revised its growth projection upwards for this year and now sees the economy expanding by 0.9 percent after a 6.3 percent contraction last year.
Another factor worrying investors is the new government's warning that the 2010 budget deficit would be way above the 3.8 percent target agreed under the IMF bailout as well as attacks on the central bank itself by ministers. [ID:nLDE63S24A]
Analysts have urged the cabinet to present a clear economic plan [ID:nLDE64Q166] and the bank on Monday warned about the need for fiscal sustainability.
"Considering that fiscal sustainability has become the focus of international investors' attention, it is particularly important to maintain disciplined, long-term sustainable fiscal policies. This is especially relevant for countries with high debt levels, such as Hungary," it said in a statement.
The finances of Central European states are in much better shape than in the euro zone periphery but Hungary's public debt is the highest in the region at around 80 percent of GDP.
The bank expects this year's budget deficit at 4.3-4.5 percent of GDP.
Simor, who has been attacked publicly by the new administration since April elections, told the news conference on Monday that he had not yet met new Prime Minister Viktor Orban.
The new government has urged lower interest rates to help the economy.[ID:nBUS002136] (Reporting by Krisztina Than/Sandor Peto; editing by Patrick Graham)