Moody’s expectedly upgrades Hungary to Baa3/Stable

Moody’s upgraded Hungary’s sovereign rating by a notch to Baa3/Stable, the agency announced after a scheduled review of the rating on Nov 4. The move was expected after Hungary was moved out of junk grade by the other two agencies as well earlier this year. The key upgrade factors included the reduction of the government debt, structural economic improvement in support of higher long-term growth as well as reduction in external vulnerability, Moody’s said. The risks in the coming years were balanced, resulting in the stable outlook on the rating, it noted. Moody’s positively evaluated improved policy transparency and more growth-friendly policies and expected them to continue in the future. It also projected further improvement in key metrics like the government debt burden.

Further upward pressure on Hungary’s rating could come from continued improvement in the country’s economic and fiscal indicators, Moody’s said. Structural reforms to stimulate private investments will be another positive rating driver as they could result in improvements in non-cost competitiveness. On the downside, ratings could come under pressure in case of looser fiscal policy, which risks the debt reduction path. Policy measures which could negatively affect the growth outlook would be also credit negative, Moody’s said.

The upgrade was largely expected so we believe that it was factored in Hungarian assets. On the other hand, the government has signaled that it will review its debt management strategy as the upgrade to investment grade by all three agencies will give it room to consider other financing options. An Eurobond issue for this year still remains a low probability event, in our view, but the government has signaled that it could tap external markets next year.

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