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Fitch affirms Hungaryʼs junk rating

Ratings

Fitch Ratings affirmed Hungaryʼs “BB plus” sovereign credit rating, one notch under investment grade, with “positive” outlook, in a scheduled review yesterday evening, Hungarian news agency MTI reported.

The issue ratings on Hungaryʼs senior unsecured foreign and local currency bonds have also been affirmed at "BB plus" and "BBB minus", respectively. The Country Ceiling has been affirmed at "BBB" and the short-term foreign currency issuer default rating at "B plusʼ, Fitch Ratings said.

Earlier, most analysts expected an upgrade of the headline rating to "BBB minus", the bottom of investment grade, but Hungaryʼs National Economy Minister Mihaly Varga played down the chance for "a major change" in a Friday morning television interview. 

After the publication of Fitch Ratingʼs review, the Hungarian forint was at 320.50 to the euro after 310.51 previously on the interbank forex market. Within half an hour it eased to 310.80 to the euro.

Just before the warning of the National Economy Minister, the forint strengthened to 308.86 to the euro, an almost one-month high, on upgrade talk.

Fitch raised the outlook on Hungaryʼs rating to "positive" from "stable" on May 22.

Standard & Poorʼs and Moodyʼs also rate Hungary one notch below investment grade, with "stable" outlook at S&P, and "positive" outlook at Moodyʼs. Moodyʼs improved the outlook from "stable" on November 6. Earlier, on March 20, S&P upgraded Hungary one notch to "BB plus". 

Hungary was knocked down from investment grade in 2011 and early 2012 by all three agencies. 

"Hungaryʼs rating and outlook reflect its strong economic growth performance in 2014-2015 and high current account surpluses since 2011, which have supported external debt reduction. The gradual tightening in the budget deficit will also help reduce the general government debt ratio, which is high relative to ratings peers. The expected improvement in the bank operating environment should help revive bank lending. Hungaryʼs GDP per capita and governance indicators are high relative to rating peers," Fitch said on Friday.

"The main factors that could lead to an upgrade are greater policy stability and predictability along with improved business environment, for example resulting in stable and predictable framework for the banking sector, continued reduction in external indebtedness supported by current account surpluses, and reduction in government debt ratio," the rating agency added.

The pre-publication of review schedules has been mandated by the EU. The schedules do not mean that ratings or outlooks would necessarily be modified, the agencies said earlier.

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