Moody's cuts Hungary bonds

Moody's Investors Service said it downgraded Hungary's foreign- and local-currency government bond ratings by two notches to Baa3 from Baa1, along with its country ceiling for the foreign-currency debt by two notches to A1 from Aa2, and country ceiling for foreign-currency bank deposits to Baa3 from Baa1. The local-currency ceilings for bonds and bank deposits have been downgraded by three notches to Aa3 from Aaa.

Moody's also said it downgraded the National Bank of Hungary's foreign-currency debt rating to Baa3 from Baa1 given that the Republic of Hungary is legally responsible for the payments on the bank's bonds.

The key downgrade drivers include its increased concerns about the country's medium- to long-term fiscal sustainability and higher external vulnerabilities than most of Hungary's rated peers, the agency said.

The outlook remains negative.

The negative outlook reflects the uncertainties regarding the government's financial strength, as the country's structural budget deficit is set to increase and external vulnerabilities make the country susceptible to event risk, the agency said.

The downgrade is primarily driven by Hungarian's gradual but significant loss of financial strength, as the government's strategy largely relies on temporary measures rather than sustainable fiscal consolidation policies, Moody's said.

As a consequence, the country's structural budget deficit is set to deteriorate, the agency said.

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