* 25 bps rate cut in line with market expectations
* Cbank says further rate cuts depend on risk assessment
* Cbank may pause next month as elections raise uncertainty
(Recasts with cbank comments, detail)
By Gergely Szakacs and Marton Dunai
BUDAPEST, March 29 (Reuters) - Hungary's central bank cut
its key rate
The central bank said elections next month would not affect rate decisions but analysts expected the bank to leave rates on hold next month as the vote would increase uncertainty over the future course of economic policy and fiscal targets.
Monday's rate reduction was the ninth straight cut in as many months, and the central bank signalled further easing was possible given the inflation outlook and a slow economic recovery. East European neighbour Romania also cut rates on Monday as recovery across the region appears to be taking time. [ID:nLDE62S0OM]
"An improvement in risk assessment obviously justified the rate cut, and the inflation and economic outlook also justified a rate cut," Hungarian central bank Governor Andras Simor told a news conference.
"We continue to think that a rate reduction, justified from an inflationary and real economic point of view, can happen if our risk assessment allows," he said.
The forint
Simor said the bank only discussed a 25 basis point and a 50 basis point cut, and the smaller cut was supported by a tight majority in the seven-member Monetary Council. In February, keeping rates on hold had also been on the table.
In a Reuters poll last week 24 out of 27 analysts forecast a
quarter percentage point
In its statement, the monetary council said it was uncertain whether an improvement in investor sentiment towards Hungarian assets can be sustained. It dropped a sentence from the February release which had said room for manoeuvre in rate policy had narrowed due to increased uncertainty in international financial markets.
In addition, there was no word on a possible end to the rate-cutting cycle, which was mentioned in the February minutes.
"The MPC comments are more dovish than expected given a split decision between 25 bps and 50 bps, only going for 25 bps by a small margin," said Peter Attard Montalto at Nomura.
"The MPC is clearly a little more bullish around the risk outlook and so, currency permitting, there can be further cuts. Much will depend on markets' reactions to the elections next month," he said.
POLICY UNCERTAINTY
Hungarian government bond yields have dropped to multi-year lows this month on the back of strong investor appetite for emerging European assets, and the forint rose further.
The bank has cut its main lending rate by 400 basis points since July 2009 and has more than halved its key rate from a peak of 11.5 percent in October 2008 when Hungary had to resort to IMF and EU help to avoid a funding crisis.
Analysts said Hungarian elections due on April 11 and 25 would increase uncertainty over the future course of economic policy and fiscal targets, which may prompt the bank to pause in rate cuts, but it could resume cuts later in the year.
The main opposition party Fidesz, which is expected to oust the ruling Socialists in next month's vote, have said they would be comfortable with a higher budget deficit. [ID:nLDE62I192]
Simor said the central bank would not take the elections directly into account when deciding on rates, and elections would only influence the rate outlook "insofar as it influences the real economic outlook and Hungary's assessment."
The bank's next rate meeting is on April 26, a day after the second election round.
"We still feel that a cut next month ... is difficult and that May would be more likely," Nomura's Montalto said.
"Perhaps the NBH could cut more as early as its next session, but I would be inclined to think they will wait until after the current politically charged period to continue the easing," said Gyula Toth at Unicredit.
Analysts' median forecast for the end-2010 base rate fell to 5.25 percent in last week's Reuters poll from 5.5 percent previously, indicating that markets expect at least one more cut after March.
(Writing by Krisztina Than; Editing by Susan Fenton)