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By Gergely Szakacs
BUDAPEST, Nov 25 (Reuters) - Hungary's central bank has room for more rate cuts after a surprise 50 basis point reduction on Monday, but any further easing of monetary conditions will depend on financial stability, policymakers said on Tuesday.
The bank, which hiked interest rates by 300 basis points in an emergency move last month to stem heavy losses in the forint currency, upset market expectations on Monday when it eased borrowing costs by half a point to 11 percent.
It said lower market pressure on Hungary, which staved off financial crisis only through a $25.1 billion IMF-led rescue loan last month, paired with an expected fall in inflation and lower economic output opened the door for monetary easing.
"The 300 basis points (rate hike) was a stability decision," central bank deputy governor Julia Kiraly told journalists on the sidelines of a conference on Tuesday. "We will ease in such a pace and extent that ensures sustained financial stability."
"Yes, we would like to ease, we do not think high rates are ideal, but again, it is about the financing of the country and the ability of markets to function," she said.
Earlier on Tuesday, central bank deputy governor Ferenc Karvalits said the bank may have room for one more rate cut this year.
Asked on public television m1 in an interview whether he considered another rate cut possible this year, Karvalits said: "This step, that is, further easing, cannot be ruled out."
At 1510 GMT, the forint traded at 259.50 versus the euro, slightly firmer from late Monday's levels after the rate cut and well off record lows near 286 per euro hit last month.
With the economy fast sinking into a recession due to a slowdown in western Europe and waning demand at home, analysts said the bank could gradually reverse the rate hike to help mitigate the impacts on the real economy.
"The fundamentals do not justify such a high base rate so once market conditions make it possible, they will take this tightening back," said Mariann Trippon at CIB Bank.
On Monday the bank forecast price growth to fall to 1.5-1.9 percent on average in 2010, below its 3 percent target.
Trippon expects the bank to deliver another 50 basis point rate cut in December, its last policy meeting this year, while rates could fall to 8 percent by the end of 2009, she said, adding there was a downside risk to her projection.
"As inflation is fully OK, the central bank could 'support' growth with its own tools without threatening its primary target," Trippon said.
(Reporting by Gergely Szakacs; editing by Chris Pizzey)