Moody's Investors Service has downgraded Hungary's government bond rating by one notch to Ba1 from Baa3, and is maintaining a negative outlook. The Hungarian government considers the move as “a series of financial attacks.”
The key drivers for the downgrade and negative outlook are as follows:
"1.) The rising uncertainty surrounding the country's ability to meet its medium-term targets for fiscal consolidation and public sector debt reduction, particularly given Hungary's increasingly constrained medium-term growth prospects.
"2.) The increased susceptibility to event risk stemming from the government's high debt burden, heavy reliance on external investors and large financing needs as the country enters a period of heightened external market volatility.
"Moody's believes that the combined impact of these factors will adversely impact the government's financial strength and erode its shock-absorption capacity. The rating agency's decision to maintain a negative outlook on Hungary's ratings is driven by the uncertainty surrounding the country's ability to withstand potential event risks emanating from the European sovereign debt crisis.
"Moody's has also downgraded by one notch to Ba1 from Baa3 the foreign-currency debt rating of the National Bank of Hungary (NBH) given that the Republic of Hungary is legally responsible for the payments on NBH's bonds."
"As the assessment by Moody’s lacks any realistic ground, the Hungarian government cannot view (the move) any other way than part of a series of financial attacks against Hungary," the Hungarian Economy Ministry said in a statement. The ministry emphasized that the rating agency’s assessment of the country is unjustified for "over the past 18 months there were clearly favourable changes in most areas of the Hungarian economy despite all external hardships."
"The reaction from the government seems extreme - talk of a financial attack on the country, launching an investigation into banks allegedly speculating against the HUF," commented the ministry’s statement Timothy Ash, analyst at the Royal Bank of Scotland, in London.
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