Hungary's central bank yesterday lifted key interest rates by 300 basis points to 12.5 per cent, one of the highest levels in Europe, in a dramatic bid to forestall a currency crisis.

The surprise move, which followed a similar emergency 300 basis point increase in June, stemmed a fall in the Hungarian forint.

But the bank's intervention left investors doubting whether enough had been done to restore confidence in Hungarian economic policy-making.

It also raised questions about how soon Hungary would be ready for the next stage of economic integration - joining the euro. Central bank governor Zsigmond Jarai, said the large increase was necessary to defend its inflation targets and "to prevent expectations for further rate hikes".

But Mr Gyorgy Barcza, economist for ING Bank, the Dutch bank, in Budapest, said: "There are fundamental reasons behind this problem and I think we are still on the verge of a currency crisis." Mr Vadym Sliusar, a fixed-income fund manager for Deutsche Asset Management, a fund manager, said: "This is useless. It won't help at all."

The forint has fallen from about 235 to the euro at the beginning of the year principally because of international investors selling Hungarian bonds out of concern about high budget and currency account deficits.

The forint fell to about 270 before it was bolstered by the June rate rise but has since fallen again. Yesterday the currency opened at a five-month low of 269 to the euro and firmed soon after the announcement to 263.5 and closed around 263.

Hungary's financial credibility began to erode in 2002, when the budget deficit reached 9.6 per cent of gross domestic product. While cuts have been made, it is still expected to reach about 6 per cent this year.

Plans to join the euro zone as quickly as possible have also served to undermine market confidence. - (Financial Times Service)