Hungary's new Finance Minister Tibor Draskovics said on Wednesday the government's official target for the forint was out of touch with reality just months before the country hopes to tie the currency to the euro.
The forint was subject to several speculative attacks last year as investors believed the government's preferred range of 250-260 forints to the euro was overvalued, given the country's bloated fiscal and current account deficits.
The government and central bank have gone quiet in recent weeks after repeated attempts to support the forint verbally failed spectacularly, but Draskovics went a step further in acknowledging the range was all but history.
"Real life does not confirm this range," Draskovics told state television MTV, adding he would not attempt to "talk up the forint".
The shift comes a day after Draskovics blew up another cornerstone of the government's plan to join the euro zone as early as 2008 by admitting Hungary would not be able to cut its budget deficit to 3.8 percent of GDP this year from 5.6 percent in 2003.
Investors, who have long been sceptical about 2008 euro zone entry, welcomed his remarks as a dose of realism absent in those of his predecessor Csaba Laszlo, sacked last week.
They said this reality check and the announced review of the government's euro strategy must now result in a new credible euro entry target and a realistic roadmap towards meeting all euro zone criteria, particularly budgetary ones.
"They must put a concrete plan on the table on how they want to achieve the spending cuts they promised," said Mariann Trippon, analyst at CIB Bank in Budapest. "It is also essential to give markets a clear view on the euro zone target date."