(Adds quotes from conference call)
WASHINGTON, June 23 (Reuters) - The International Monetary Fund on Tuesday agreed to disburse the next tranche of 1.4 billion euros ($1.9 billion) to Hungary under an IMF loan accord designed to help it deal with the financial crisis.
The IMF disbursement brings to 8.4 billion euros the amount paid out so far under the 11.7 billion euro ($16.2 billion) IMF loan program agreed with Hungary on Nov. 6, 2008.
IMF First Deputy Managing Director John Lipsky said a further strengthening in investor confidence and easing of financial strains would create room for interest rate cuts in Hungary.
"Monetary and exchange rate policy will continue to target inflation over the medium term, while being prepared to act as needed to mitigate risks to financial stability and avoid risks to destabilizing the exchange rate," Lipsky said in a statement.
He said Hungary should be prepared to mitigate risks to financial stability and avoid foreign exchange disruptions.
The IMF also said it had suggested that Hungary strengthen bank resolution frameworks.
"The prompt implementation of the authorities' revised program to preserve financial stability, including the careful monitoring of banks that receive government financial support and strengthening bank supervision, are important steps," Lipsky said.
"It is recommended that the authorities explore institutional arrangements that would provide the financial supervisory agency with the necessary regulatory powers, and that remedial action and bank resolution frameworks be quickly strengthened," he added.
James Morsink, IMF mission chief to Hungary, said economic conditions in Hungary had deteriorated since the IMF's first review of program in March mostly due to weaker external demand and tight financing conditions.
The IMF believes Hungary's economy will contract by 6.7 percent this year -- the same projection as the central bank -- and double the IMF's March forecast of 3.3. percent, Morsink added.
A revised IMF-backed economic program since March has set more ambitious structural spending and tax reform targets for Hungary, and increased its fiscal deficit target in 2009. On May 18, the IMF and European Commission agreed to allow Hungary to raise its budget deficit to 3.9 percent of GDP from an earlier 2.9 percent target. (Reporting by Lesley Wroughton; Editing by James Dalgleish)