Although the suffering Icelandic crown made an intra-day development was very rich in the Hungarian forex market yesterday, all has been forgotten after Moody’s decision to cut an outlook of Hungary’s sovereign ratings. The rating agency delivered its decision to change the outlook on Hungary's A1-rated medium- to long-term foreign and local currency rating just before the closing yesterday. As a result the forint immediately lost ground and the EUR/HUF pair spiked to the three-months high (254.35).
Moody’s has been the third rating agency (after Fitch and S&P), which has published a negative rating assessment during last four month. The agency used familiar language in describing its decision to change the outlook (for more see the News section). In short, it is a loose fiscal policy, which leads to larger budget deficits, greater public sector borrowing, and higher debt servicing costs. According to Moody’s the deterioration of fiscal stance will postpone the country's entrance into the ERM2 to the next decade. We can only agree with Moody’s, while we are quite surprised that the agency was allowed to hold such high rating assessment (A1 rating with stable outlook, which corresponds to A+) in Hungary’s case despite significant deterioration of the key debt ratios.
All in all, Moody’s action confirmed a change of the market tone to negative after yesterdays sudden weakening of the forint. We expect a volatile session, while it seems that the EUR/HUF pair has found strong resistance at the 254. level. Forint plunges aftter Moody’s rating action.
(CSOB - Investment research)