Ratings agency Fitch affirmed Hungary’s “BB plus” sovereign credit rating, one notch under investment grade, with “positive” outlook, in a scheduled review last Friday.
The issue ratings on Hungary’s senior unsecured foreign and local currency bonds have also been affirmed at “BB plus” and “BBB minus”, respectively. The Country Ceiling has been affirmed at “BBB” and the short-term foreign currency issuer default rating at “B plus’, Fitch Ratings said.
Earlier, most analysts expected an upgrade of the headline rating to “BBB minus”, the bottom of investment grade, but Minister of National Economy Mihály Varga played down the chance for “a major change” in a Friday morning television interview.
“The big rating agencies have improved their outlook to positive over the past months,” Varga said. “I think given that Fitch already has a positive rating, we cannot expect such a big, major change this time.” He adding that it would of course be favourable if there were a change, but based on his own survey he did not expect it.
After the publication of Fitch Rating’s review, the forint was at 320.50 to the euro from 310.51 previously on the interbank forex market. Within half an hour it eased to 310.80. Just before Varga’s warning, the forint strengthened to 308.86, an almost one-month high, on upgrade talk.
According to Fitch, “Hungary’s rating and outlook reflect its strong economic growth performance in 2014-2015 and high current account surpluses since 2011, which have supported external debt reduction. The gradual tightening in the budget deficit will also help reduce the general government debt ratio, which is high relative to ratings peers.
“The expected improvement in the bank operating environment should help revive bank lending. Hungary’s GDP per capita and governance indicators are high relative to rating peers.”
The agency added: “The main factors that could lead to an upgrade are greater policy stability and predictability along with improved business environment, for example resulting in stable and predictable framework for the banking sector, continued reduction in external indebtedness supported by current account surpluses, and reduction in government debt ratio.”
Ágnes Hornung, a state secretary at the Economy Ministry, said on public television on Saturday that credit rating agencies may decide to upgrade Hungary’s sovereign rating next year. Countries with a “positive” outlook generally see a rating upgrade within 12 months, thus an upgrade for Hungary could come next year, said Hornung.
ING’s chief analyst András Balatoni told state news agency MTI on Saturday that the big rating agencies were being too conservative and too pessimistic – especially in the case of Hungary – unlike before the crisis, when they were overly optimistic. Fitch had said an upgrade hinges on more stable, predictable economic policy, maintaining the external balance and a further decline in public debt, which are all areas in which progress is being made, Balatoni said, adding that an upgrade could come early in 2016.
Takarékbank analyst Gergely Suppan said Fitch’s decision not to upgrade Hungary’s sovereign rating on Friday was “a bit disappointing”, but added that the rating could be bumped up in the first half of next year, especially considering the outlook is “positive”.
Standard & Poor’s and Moody’s also rate Hungary one notch below investment grade, with “stable” outlook at S&P and “positive” outlook at Moody’s. Moody’s improved the outlook from “stable” on November 6. Earlier, on March 20, S&P upgraded Hungary one notch to “BB plus”.
The pre-publication of review schedules has been mandated by the EU. The schedules do not mean that ratings or outlooks would necessarily be modified, the agencies said earlier. Hungary was knocked down from investment grade in 2011 and early 2012 by all three agencies.