2 or 3 25-bp cuts by end-2024 look realistic

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Longer-term rate cut projections seem overdone

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Bank will not overreact to one or two benign data

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Needs sustained improvement in inflation outlook

(Adds more comments, detail)

By Gergely Szakacs and Anita Komuves

BUDAPEST, July 15 (Reuters) - A possible further small reduction in Hungary's base rate is an "open question" for the central bank at its policy meeting next week, Deputy Governor Barnabas Virag said on Monday, adding that it would not overreact to one or two better economic data.

The National Bank of Hungary reduced the base rate to 7% last month, as expected, and has now cut borrowing costs by 1,100 basis points since May 2023.

The bank also lowered its 2024 inflation forecast by half a percentage point due to lower-than-expected fuel and food prices last month, but warned there was no room for complacency amid an expected rebound in core inflation.

Virag said current expectations for two or three 25-basis-point reductions in the base rate by the end of the year looked realistic, but market projections for rate cuts on a 1.5 to 2-year horizon appeared excessive.

"The fact that we have had some better-than-expected data can affect the timing (of rate cuts), in that the Monetary Council could deliver these rate cuts sooner," Virag said. "This means that a rate cut in July is absolutely an open question."

However, the bank, which was forced into emergency rate hikes in October 2022 amid falls in the forint, would not overreact to one or two better economic figures and needs to see a sustained improvement in the inflation outlook, he said.

"We should not and will not overreact to incoming data," Virag said. "One or two favourable figures will not change the expected interest rate path."

Hungarian headline inflation, which scaled the European Union's highest levels of over 25% in the first quarter of last year, fell to an annual 3.7% in June from 4.0% in May, below expectations, data showed last week.

Virag said December inflation could be closer to 4%, the top of the bank's target range, rather than 5% as projected by some economists. However, he said the bank wanted to see inflation return to its 3% policy target on a sustained basis.

Virag said decisions in the coming months would be between no change or a small reduction in interest rates. (Reporting by Gergely Szakacs and Anita Komuves; Editing by Arun Koyyur)