An upgrade from S&P, possibly leading to a stronger HUF in short term

HUNGARY - In Brief 17 Feb 2019 by Istvan Racz
On Friday, February 15, S&P upgraded the Hungarian State to BBB/Stable from the BBB-/Positive level, at which it had been staying since August 2017. This was not entirely unexpected. The agency was impressed especially by regular high growth and the systematic reductions of the government debt ratio over recent years. They did not seemed very concerned about rising inflation, the deterioration of the BOP and political risks.If anything, this event can make the forint somewhat stronger in short term, especially if Fitch Ratings, which is going to have a revision date on February 22, decides to follow S&P's example. This is actually quite possible, as the agency has maintained a positive outlook on its BBB- rating for the government since November 2017, and it looked recently even more positive than S&P on the whole CEE region.Should credit rating news strengthen the forint between now and the late March rate-setting meeting of the Monetary Council, it would reduce the chance for the MNB to make any net withdrawal from FX swaps at that juncture, in view of the weakening European cycle, its impact on export and import prices, and the deteriorating BOP situation.

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