S&P's upgrades Hungary to investment grade, outlook stable

In a surprise move on 16 September, rating agency Standard and Poor’s upgraded Hungary to investment grade. S&P's raised its long and short-term foreign and local currency sovereign credit ratings on Hungary to ‘BBB-/A-3’ from ‘BB+/B’, putting the country back in investment grade. S&P also raised its rating for the National Bank of Hungary (NBH) to ‘BBB-’ from ‘BB+’. The outlook on both Hungary and the NBH is stable.

S&P forecasts Hungary’s economy to grow at an average clip of 2.5 percent y/y in 2016-2019, up from a 2.0 percent forecast in its previous review in March. The agency pointed out a “marked improvement” in Hungary’s external financial profile after the 2008-2009 global financial crisis. The agency projects the public finance deficit will narrow further to 1.8 percent of GDP in 2016 from 2.0 percent in 2015, though it is expected to widen slightly to 2.5 percent in 2017. S&P forecasts Hungary’s state debt-to-GDP ratio will “maintain its downward trajectory over the medium term”, falling to 68 percent in 2019 from 72 percent in 2015.

The NBH, which holds its interest-rate setting meeting tomorrow, welcomed the decision of S&P and claimed in their statement that it will continuously work on with their fiscal and monetary assets to reach more upgrades.

"We think that S&P’s upgrade is definitely positive for Hungarian government bonds as it means that many (investment-grade oriented) funds will now be able to buy these Hungarian assets," said KBC markets in a report.