Tagged: Forint fall

Hungary Credit Rating May Be Cut to Junk After IMF Talks Fail

Bloomberg | Jul 23, 2010

Standard & Poor’s said it may cut Hungary’s credit rating to junk after the collapse of talks with the International Monetary Fund and European Union. Moody’s Investors Service said it may also lower the country’s grade. The IMF and EU on July 17 suspended talks with the government without endorsing Prime Minister Viktor Orban’s plans to control the budget deficit. The creditors provided Hungary with a 20 billion-euro ($25.9 billion) rescue package in 2008, which had served to reassure investors. “We believe that without an EU/IMF program to anchor policy, Hungary is likely to face higher and more volatile funding costs, which in our view could weigh on financial sector balance sheets, the public finances, and economic growth,” S&P said today in a statement. A rating downgrade would raise the cost of borrowing for Hungary at a time when the country is struggling to repair investor confidence after ruling party officials in June compared the country’s economy with Greece. S&P rates Hungary BBB-, its lowest investment grade. The Moody’s rating is two steps higher at Baa1. S&P will lower Hungary’s rating if in the coming year it concludes “government policies are unlikely to result in a meaningful decline in public debt,” it said in the statement.

Forint Falls

Hungary’s currency fell 1.1 percent to 286.83 per euro as of 3:15 p.m. in Budapest. The forint has dropped 8.1 percent in the past three months, making it the worst performer among more than 170 currencies tracked by Bloomberg. The cost of insuring Hungary’s government debt against default rose 14.5 basis points to 343, according to data provider CMA. “Running a higher budget deficit while losing your biggest potential supplier of capital isn’t a good mix,” said Kieran Curtis, who manages $2 billion in emerging market debt at Aviva Investors in London. “The market isn’t going to finance a higher budget deficit without an IMF agreement.” Hungary’s government said credit rating companies “don’t understand” that fiscal responsibility needn’t come at the expense of independent economic policy. “We’re going to continue a disciplined fiscal policy, which doesn’t equal the usual austerity policy that affects families and businesses,” the Economy Ministry said in an e- mailed response to questions from Bloomberg News.  

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Hungary under pressure to agree with IMF, central bank eyed

Reuters | Mon Jul 19, 2010 | 3:52pm IST

Hungary’s markets sold off on Monday after talks with lenders fell through at the weekend, rattling investor confidence in the government’s policies and raising concerns over the country’s debt vulnerability. Hungary’s government had insisted on a new financial sector tax this year and rebuffed lenders’ calls for further austerity measures, the economy minister said on Monday. The forint plunged over 2.5 percent versus the euro and yields surged 20-30 basis points as the collapse of the talks — intended to review the IMF/EU financing deal Hungary struck in 2008 — dealt the second major blow to investor confidence since the new centre-right government took power in May. In early June, officials alarmed markets by comparing Hungary’s problems with those of Greece.

The International Monetary Fund and European Union have both said the government needs to take tougher measures to rein in the budget deficit. Analysts said market weakness could spill over to other markets in the central European region, and the sell-off would likely to push the Hungarian government to reach agreement with its lenders soon. "Arguably continued adherence to the current IMF programme had anchored both markets and Hungary’s (credit) ratings: the fact that Hungary is now going off-piste suggests both may be under threat," said Timothy Ash at Royal Bank of Scotland.

RATE RISE TALK

Hungary, which runs central Europe’s highest public debt at about 80 percent of gross domestic product (GDP), won’t be able to use remaining funds in its 20 billion euro ($26 billion) loan secured in 2008 until it reaches a deal with the IMF and EU. Even though Hungary is not under immediate financing pressure, such delays would raise its financing costs, potentially forcing the central bank to raise interest rates and putting pressure on Hungary’s ratings, analysts said. The central bank will hold a regular rate meeting on Monday with a rate decision 

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