* Hungary cbank cuts further half-point off main rates
* Move as expected, analysts see further cuts ahead
* "There is limit" to rate cuts, risk assessment key-Simor
(Adds more detail, governor's comment, market reaction)
By Balazs Koranyi and Sandor Peto
BUDAPEST, Oct 19 (Reuters) - Hungary's central bank cut
interest rates 50 basis points to 7.0 percent
The bank has now cut by two and a half percentage points in
four months to ease a deep recession, bringing base rates
That more than reverses an emergency rate hike a year ago that upped the premium for holding its currency to 11.5 percent when Hungary had to resort to an IMF-led rescue.
The central bank said on Monday that it could significantly undershoot its medium-term inflation target of 3 percent on the horizon influenced by monetary policy, and that the inflation outlook alone required further monetary easing.
Governor Andras Simor told a news conference the bank had discussed larger cuts at the meeting but he also said that the scope of cuts would be determined by investors' appetite for assets in riskier emerging markets and Hungary itself.
"There is a limit to interest rate reductions ... partly the inflation outlook, partly investors' risk appetite and Hungary's risk assessment means the limit," Simor said.
"Equal interest rate steps (of 50 bps) are also justified by the fact that in this way the market can possibly signal earlier if it senses a danger zone, and this is an important aspect."
Analysts expect both Hungary and neighbouring Romania, where the key central bank rate is 8.0 percent, to cut interest rates further to help their economies recover from a slump this year.
The forint
Analysts expect the NBH's base rate to bottom out at around 5.5 percent by the middle of next year. [ID:nLF308298]
ECONOMY MAY DECOUPLE
Rates may have already reached the bottom in the nearby Czech Republic and Poland -- at 1.25 and 3.5 percent, respectively -- where economic fundamentals are sounder and recovery is seen arriving earlier than in Hungary.
But Hungary's economy is expected to contract by 6.7 percent this year and growth is seen returning only from the second half of next year which the central bank said posed a threat of decoupling from the region as the recovery gathers speed.
"Further analysis is needed to decide whether Hungary's economy may decouple from the region -- this is a risk that we became aware of while observing the data of the past one or two months," Simor said.
Hungarian inflation figures have surprised on the downside in the past months despite government tax hikes in July, as the deep recession kept price pressures low. Consumer inflation surprised by easing to 4.9 percent in September.
Economists point to substantial risks, however, and Zsolt Kondrat at MKB Bank said further deep cuts could risk higher forint volatility and a sudden reversal in yields if global risk appetite vanes.
"The central bank should come to terms with these risks and communicate to markets what level of the base rate they deem broadly appropriate at the current stage," he said.
"This communication may be reinforced by rate cuts put in lower gear next time, that is, shifting to smaller, 25 bps steps," he added.
(Writing by Krisztina Than; editing by Patrick Graham)