Yesterday, Fitch Ratings changed the Outlook on Hungary's foreign currency
and local currency Issuer Default ratings ("IDRs") to Negative from Stable.
The ratings, which were downgraded in December 2005, were affirmed at
‘BBB+’ and ‘A+’.
According to Fitch Recent developments have increased the chances that the
government's much-needed reform programme, spearheaded by the Prime
Minister, will be diluted. At the same time Fitch added that Success at
implementing the outlined fiscal path is essential to lessening Hungary's
external vulnerabilities at a time when the external financing environment
could become less favourable. Failure to do so would increase negative
pressure on the ratings.
Our view:
While we broadly agree with Fitch’s arguments, we would like to point out
that the recent rating action could have further implications. The forint was
hit by Fitch’s actions and its prolonged weakness might eventually influence
NBH’s rate decision on Monday. So far we expected NBH will stay on hold
next week, but if the forint stay visibly above EUR/HUF 275.0, the central
bank will probably raise rates (by 25 bps to 7.50%).