UPDATE 1-Hungary c.bank cuts rates to new low, may flag more
(Adds quotes, background)
* Hungary c.bank delivers 12th interest rate cut to 4 pct
* Rate cut in line with analyst expectations in Reuters poll
* Governor Matolcsy to speak about rates for the first time
* May give guidance to markets about end of easing-analysts
BUDAPEST, July 23 (Reuters) - Hungary's central bank cut its main interest rate to a new low of 4 percent on Tuesday to boost the sluggish economy, and is expected to continue cutting despite an increasingly uneasy global environment.
For the first time since taking office in March, Governor Gyorgy Matolcsy will give guidance about rate policy at 1300 GMT. Investors will watch his news conference closely for signs of any pause or end to the bank's year-long easing campaign.
The bank said it had lowered the base rate by 25 basis points, continuing the cuts despite recent wobbles in the forint currency and steep falls in shares of the Hungary's biggest bank OTP. This was caused by concerns that the government could take further drastic steps to help hundreds of thousands of households which have foreign currency mortgages.
Previous measures, including a repayment scheme in 2011, forced Hungary's mostly foreign-owned banks into huge losses, and investors fear the new plans could hurt banks further. The government is due to discuss the plans on Wednesday.
Under Matolcsy, a former economy minister and close ally of Prime Minister Viktor Orban, the National Bank of Hungary (NBH) stopped holding news conferences after its rate decisions.
Breaking this trend for the first time, Matolcsy is expected to adopt the kind of communications strategy long used by the likes of the European Central Bank and U.S. Federal Reserve.
"He is likely to follow the example of the major central banks (i.e. ECB and Fed) and provide the markets with forward guidance," Commerzbank analysts said. "The majority of market participants, including us, expect Matolcsy to keep the door open for further rate cuts, while at the same time signalling that the end of the rate cut cycle was near."
The Hungarian central bank has room to cut rates further as domestic economic growth is slow and inflation is firmly below its 3 percent target, running at an annual 1.9 percent in June.
The Monetary Council, where all rate-setters have been appointed by Orban or his Fidesz party's parliamentary majority, is also keen to boost growth and support the government's policies before elections next year.
However, recent tremors in emerging markets caused by the Fed's plan to scale back its programme of stimulating the U.S. economy are increasing the vulnerability of risky markets such as Hungary, which has enjoyed a strong inflow of money into its bonds in the past year.
September is the most likely time for the Fed to announce that it will trim its monthly bond purchases, according to a Reuters poll of economists taken after Chairman Ben Bernanke's congressional testimony last week.
The forint weakened slightly as news of the relief plan for holders of foreign currency mortgages emerged but, at around 295 per euro, it is still stronger than before last month's rate cut. Hungary's five-year default risk premium is also down from a month ago.
Analysts in a Reuters poll forecast the base rate bottoming out at 3.75 percent, a quarter point below the level predicted a month ago, and some economists say rates could fall further still if markets remain benign.
"The most important question is when the easing cycle will end. We still believe that the NBH will cut twice more after today's meeting to 3.5 percent, but any cuts from now on will be threatened by a rapid reversal if risk appetite wanes again," Unicredit said in a note.
(editing by David Stamp)