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Hungarian policy makers voted 8-4 last month to keep the key interest rate unchanged, opting to fight inflation by letting the forint strengthen, minutes from the meeting show.

Policy makers, led by central bank President Andras Simor, have kept the benchmark two-week deposit rate at 7.5 percent since September. Rate setters on Feb. 25 also discussed raising the rate to 7.75 percent. A decision to remove currency trading limits was backed by 11 rate setters, with one dissention.

The central bank then allowed the forint to trade freely for the first time ever, betting that it will strengthen against the dollar and the euro, helping to keep inflation in check. Food and oil price `shocks' spreading in the economy may trigger a rate increase, the bank said.

“The Monetary Council is ready to tighten monetary policy to prevent second-round inflation shocks which would be unfavorable to the medium-term inflation outlook,'' the bank said.

The forint strengthened to 257.35 per euro by 3:11 p.m creditreports. in Budapest from 258.14 late yesterday. The yield on the benchmark five-year bond fell to 8.62 percent from 8.73 percent.

Inflation risks rose “greatly'' in recent months, driven by food and oil price increases, the bank said today. There was no evidence that these rising prices led to second-round inflation effects, council members said.

Budget Cuts

Prime Minister Ferenc Gyurcsany raised taxes and cut subsidies to rein in the widest budget deficit in the European Union. The measures slowed economic growth to an annual 0.8 percent in the fourth quarter, the lowest rate in 11 years.

Slowing economic and wage growth, both effects of the austerity measures, could tame inflation, the bank said. The growth outlook, however, has “significantly'' worsened as a result, monetary council members noted.

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