* Hungary keeps rates on hold at 9.5 pct as expected * Cut possible if risk assessment improvement sustained -cbank * Opposition calls on cbank Governor Simor to resign
By Balazs Koranyi and Gergely Szakacs
(Recasts with opposition party Fidesz comments)
BUDAPEST, June 22 (Reuters) - Hungary's central bank kept interest rates flat for a fifth month running on Monday, resisting political pressure to cut but signalling it could move once financial stability risks subside.
The bank has held rates since late January, despite a deepening recession, citing risks to financial stability from a forint currency battered by Hungary's status as one of the weaker of the EU's emerging economies.
The forint
The bank said improvement in the country's risk assessment had stalled over the past month and that monetary easing could endanger financial stability. But it also held out hope that rates could come down.
"The (Monetary) Council concluded that if the improvement in the risk assessment is lasting, that could create an opportunity for cutting interest rates," Governor Andras Simor told a news conference after the body's monthly rate setting meeting.
The council said Hungary's dependence on foreign funding and strains in domestic financial markets warranted caution in monetary policy.
"Financial stability is still a top priority, and the Council would refrain from re-entering the easing cycle as long as they are not fully confident that the recent improvement in the market conditions is a lasting phenomenon," said Mariann Trippon, analyst at CIB Bank.
Trippon said if the volatility of the forint's exchange rate decreases and investor sentiment towards Hungary remains benign, a rate cut could gain a majority vote in the Council in July.
Other countries in central and eastern Europe, where export-led economies have also been hit hard by a collapse of demand in euro zone markets, are expected to cut rates later this week.
The Czech central bank is expected to cut its main policy rate by a quarter point to a new all-time low of 1.25 percent on Thursday, a Reuters poll showed. The Polish central bank is also seen cutting rates on Thursday as the economy is slowing and inflation eased in May [ID:nLM56066].
In Hungary, where the economy is expected to contract by 6.7 percent this year, inflation is on the rise, and is seen surging towards the end of the year due to government tax hikes.
Simor said the bank expected inflation to ease back down to around the bank's 3 percent medium-term inflation target on its policy horizon.
"At this point we, think that the demand side impacts on inflation will be stronger than the tax hike," he said.
POLITICAL PRESSURE
Both Hungary's ruling Socialists and the main opposition party Fidesz, which is expected to score a sweeping victory in next year's parliamentary elections, have criticised the bank over high interest rates.
Simor has also come under fire over a foreign investment, which both Fidesz and Socialists said was used to avoid taxes.
Simor rejected the charges, said he did nothing illegal and also said that the political pressure endangers the central bank's independence.
"You can't attack the National Bank's governor without attacking the independence of the national bank and damaging the bank's ability to carry out its role."
"I was appointed for 6 years, I have a job here and I'd like to carry out my job here. I'd like to concentrate on these tasks with all my energy," he added.
Fidesz, which leads opinion polls by a wide margin, said Simor should have done two things on Monday: announce a rate cut and resign.
"It's unfortunate that the Governor did neither of these two things," Fidesz deputy spokesman Andras Cser-Palkovics was cited by national news agency MTI as saying.
Simor's term will expire in March 2013. Hungarian laws make removing the governor very difficult. (Writing by Krisztina Than, editing by Andy Bruce)