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Scale of Moody's downgrade surprises

The market expected Moody's to downgrade Hungary, but the size of the cut -- two notches -- came as a surprise, analysts told MTI.

Moody's Investors Service said it downgraded Hungary's foreign- and local-currency government bond ratings by two notches to Baa3 from Baa1. Moody's said the main reasons for the downgrades were “increased concerns about the country's medium- to long-term fiscal sustainability and higher external vulnerabilities than most of Hungary's rated peers.”

Mátyás Kovács of Raiffeisen Bank said the scale of the downgrade, but not the downgrade itself surprised the market. Moody's put Hungary's rating on review for a downgrade in the summer and signalled a decision would be made by the end of November. But few expected Moody's to knock the rating down two notches to minimum investment grade, just above junk, he said.

Hungary's Moody's rating is now level with that of Standard and Poor's, Kovács said. Fitch rates Hungary a single notch higher, but a director of the ratings company recently said Hungary's credit grade could be cut by the end of the year, he added.

Gergely Suppan of Takarékbank also said the size of the downgrade was a negative surprise as was the negative outlook.

“The negative outlook reflects the uncertainties regarding the government's financial strength, as the country's structural budget deficit is set to increase and external vulnerabilities make the country susceptible to event risk,” Moody's said on Monday.

The government promised structural reforms for February, but it appears that ratings company analysts' patience ran out, Suppan said. (MTI – Econews)