Analysts: Hungary to return to investment grade in 2016

Ratings

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Hungary is set to regain investment grade status next year, and the central bank is likely to embark on a new rate cutting cycle, London-based emerging markets economists said yesterday, Hungarian news agency MTI reported.

In a report outlining its revised 2016 forecasts for emerging markets, released to clients in London, Morgan Stanley said that  “credit upgrades are overdue” and Hungary will regain its investment grade rating with at least one, but more likely at least two agencies.

“The ongoing sharp fall in external and FX-denominated government debt, together with a more predictable operating environment for banks and an ongoing solid fiscal position, should be enough to warrant upgrades,” according to the report.

Hungaryʼs current “BB+/Ba1” sovereign credit rating is a single notch below investment grade, and two major credit rating agencies, Fitch Ratings and Moodyʼs Investors Service, have now upgraded their outlook on Hungaryʼs ratings to positive, implying a potential rating upgrade.

In terms of monetary policy, Morgan Stanleyʼs economists said that with the economy slowing, inflation rising on base effects but staying well below target and the ECB set to administer more QE, the National Bank of Hungary (MNB) seems to have another window to ease policy further.

“If, as we expect, inflation slows down in the second quarter (after an expected sharp rise early next year), the MNB could easily revert to an easing stance and cut rates to around 1% later in the year,” Morgan Stanleyʼs analysts said.

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