Hungary's currency, the forint, will be allowed to float freely against the euro from Tuesday, the central bank said Monday.
The National Bank of Hungary's surprise decision will eliminate the current exchange rate system, in which the forint was kept within a band of plus or minus 15 percent against the shared European currency.
The bank said the move was an important step in Hungary's aim to switch to the euro and would provide the bank more favorable conditions to get inflation under control. The current exhange rate system "does not contribute to anchoring long-term inflation expectations," the NBH said in a statement announcing the new system.
The central bank also said Monday that it was leaving its key interest rate _ the two-week deposit rate for commercial banks _ unchanged at an annual 7.50 percent.
The central back said its decision to introduce the new exchange rate system was made in agreement with Hungary's Socialist-led government.
Hungary has not set an official date for adopting the euro, but many analysts say 2014 is realistic.
Target dates announced earlier _ which considered introducing the euro even before 2010 _ were repeatedly scrapped as Hungary's economic performance and its macroeconomic indicators deteriorated.
To enter the so-called European Rate Mechanism II, the union's official two-year waiting room for euro hopefuls, a country must not exceed limits to its state budget deficit, inflation rate and debt level _ the Maastricht criteria.
While earlier the NBH forecast inflation to drop to an annual 3 percent by the second quarter of next year, it now sees that target as unattainable.