Hungary Needs IMF Backing to Counter Euro Contagion, Bofa Says

Hungary needs a precautionary standby loan agreement with the International Monetary Fund to defend against contagion from a potential worsening of the euro crisis, Bank of America Corp. (BAC) economist Raffaella Tenconi said.

Prime Minister Viktor Orban may “reassess” his opposition to an IMF agreement if global conditions deteriorate, the London-based Bank of America Merrill Lynch economist said in an e-mail today.

While the central bank is currently opposed to immediate interest rate increases, the risk remains that an “emergency” rate rise may be needed to counter the impact from potential contagion, Tenconi said. There are risks the government will overshoot its budget deficit target next year, she said.

A downgrade of Hungary’s credit to junk would have “severe” consequences because of the country’s reliance on foreign bond investors, Tenconi said.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Zoltan Simon at zsimon@bloomberg.net