*Economy needs lower rates - Deputy Governor Karvalits
*Stability on markets still fragile, justifies caution (Adds details)
BUDAPEST, Sept 3 (Reuters) - Hungary's inflation and growth outlook gives the central bank (NBH) room for further monetary policy easing but the pace of future interest rate cuts cannot be predicted, NBH Deputy Governor Ferenc Karvalits said on Thursday.
"It is clear that there is need for further easing, but we do not have a definite idea about the pace (of future rate cuts)," Karvalits told local news radio Inforadio.
The bank has cut benchmark rates by a cumulative 150 basis
points in the past two months, but Hungary's key base rate
still stands at 8.0 percent
The NBH expects the economy to contract 6.7 percent this year in the country's deepest recession in almost two decades.
Karvalits said low domestic demand was likely to help inflation fall to 2 to 2.5 percent, below the bank's 3 percent target, by the second half of 2010.
"Economic prospects and inflation forecasts point to a direction that easing monetary conditions is possible and necessary and the central bank has the room to pursue an anticyclical monetary policy," he said.
He said a recovery in risk appetite in global markets in the past months allowed the NBH to resume its monetary easing cycle in July, when it cut rates by a bigger-than-expected 100 basis points, but markets remain fragile.
"There is a risk of another deterioration in (market) conditions, therefore the central bank ... is unable to communicate interest rate steps of a very definite pace and size," he added. (Reporting by Krisztina Than and Sandor Peto; Editing by James Dalgleish)