The most interesting thing happened Friday later in the evening. Standard & Poor’s announced a further cut in Hungary’s rating, which had already been in junk territory, to BB. Right after the release, the EUR/HUF pair soared and breached above resistance at 282.25. Regarding the reasons, S&P said that the downgrade reflected its opinion that policy measures undertaken by the Orban administrative might undermine medium-term growth potential of the economy. More specifically, the agency quoted the measures aimed at the financial sector, which might, in the agency’s view, reduce their willingness to lend.
Apart from the critique of Hungary’s officials, the government might show more willingness to strike a deal with the IMF on a new stand-by loan in weeks ahead in attempt to calm markets (although we start to believe that the government does not, in fact, want to reach a deal). Moreover, prospects of further depreciation of the forint might make some central bankers less comfortable with additional rate cuts; let us recall that the central bank is widely expected to lower interest rates by 25 bps tomorrow.