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Hungary credit ratings will improve on fiscal plans, says City

Hungary is likely to see its sovereign credit ratings, currently in the lowest investment grade, upgraded on the back of the government's consolidation plans, London-based analysts said on Friday.

In a report on the CEE region released to investors in London, RBC Capital Markets said that Hungary’s fiscal problems preceded the voes that now plague parts of the Eurozone, but corrective measures have already been put in place with the government announcing a 2-3 year budget package earlier this year.

While part of the solution is "unconventional" - such as the nationalisation of most of the private pension system - "and implementation over the longer term is a risk", a planned deficit cutting programme "will at least produce some positive results".

"Perhaps in typical fashion the credit (rating) agencies were overly eager to downgrade Hungary's sovereign rating during the crisis but have been slow to recognise improvements". Negative outlooks are "no longer warranted and we expect 1-2 notch upgrades by all three agencies over the medium term, assuming the government adheres to its plans", RBC Capital Markets said.

On the Eurozone membership outlook, the report said that the current problems in the Eurozone economies have "dented enthusiasm for Euro membership".

The policy flexibility of floating exchange rates and the "ad hoc response" by EU leaders to the current debt crisis, "which has rocked the very foundations of the euro itself", have all encouraged "a degree of deep scepticism within much of CEE".

It looks "extremely unlikely" that Hungary, Poland, the Czech Republic, Romania or Bulgaria will contemplate euro membership within the next 4-5 years, RBC Capital Markets said.