The downgrade to junk status of Hungary's credit rating by Moody's is part of a series of "financial attacks" against the country, Hungary's economy ministry said Friday.
Moody's Investors Service, one of the three main credit rating agencies, cut its valuations of Hungary's government bonds by one notch, from Baa3 to Ba1, pushing its valuation of the country's debt from investment grade to junk status. Moody's also kept its negative outlook on expectations for Hungary.
There were widespread expectations for a downgrade, so initial market reaction to the decision was restrained. Still, yields on Hungarian debt have been creeping upward and the national currency, the forint, weakened against the euro. Early Friday, the forint fell to 315.80 per euro, 1.5 per cent weaker than its opening exchange rate.
"Since there is no real basis for Moody's evaluation, the Hungarian government can't interpret it differently than as part of the financial attacks on Hungary," the ministry said in a statement. "It has no basis because, despite all the external difficulties, in the past year and a half there has been an expressly favorable change in most areas of the Hungarian economy."
Illustrating its point, the ministry mentioned Hungary current account surplus, the falling budget deficit, a significant cut to state debt levels and economic growth which exceed the European Union average in the third quarter of the year.
"The first driver of today's downgrade is the uncertainty surrounding the Hungarian government's ability to meet its targets on fiscal consolidation and public sector debt reduction over the medium term, in view of higher funding costs and the low-growth environment," Moody's said late Thursday. "The second driver of today's action is the country's vulnerability to external shocks stemming from the government debt structure, which could in turn expose the government to funding cost pressures."
Moody's said a further downgrade could come is "there is a significant decline in government financial strength due to a lack of progress on structural reforms," while "a more consistent implementation" of the government's planned reforms and economic program could make the agency consider stabilizing its ratings outlook for Hungary.
Just hours before the announcement, Standard and Poor's, another of the main ratings agencies, said that while it was keeping Hungary on "negative watch" for a downgrade, it would wait for developments in upcoming talks by Hungary with the International Monetary Fund and the European Union before making its rating decision.
Last week, the government said it would seek a financial "safety net" from the IMF and the EU, but no new loans, in an effort to improve investor sentiment and protect itself against the spiraling eurozone debt crisis.
In late 2008, Hungary became the first EU country to receive an IMF-led bailout, getting a €20-billion standby loan to avoid defaulting on its debts.
Follow Emirates 24|7 on Google News.
