IMF Talks May Avert Hungary Credit Downgrade

Hungary seeking an agreement with the International Monetary Fund may help the country avoid its credit rating being cut to junk, said Ferenc Gerhardt, a member of the central bank’s Monetary Council.

“I don’t see a pending threat that the country’s bonds will be placed in junk category, especially after this announcement” on a potential IMF agreement, Gerhardt said on Budapest-based ATV yesterday.

Hungary, which has its credit grade at the lowest investment rank at all three major rating companies, abandoned its policy of shunning IMF assistance this week and said it was seeking an agreement with the Washington-based lender. Previously, the forint fell to a record low against the euro, government bond yields soared and Standard & Poor’s warned it may cut Hungary’s credit rating to junk this month.

Hungary’s assessment “will change” on the expected IMF deal, Gerhardt said, adding that the country needs to regain the “goodwill” of the markets to ease the pressure on the forint.

“This is why we need the IMF agreement,” Gerhardt said.

The forint, the worst-performing currency in the world since June 30, gained 3 percent in the past two days, the most since May 2009 on a closing basis, according to Bloomberg data.

‘Unjustified’ Forint Pressure

The pressure on the forint “is unjustified” and the Magyar Nemzeti Bank may need to “gradually increase” interest rates if it persists, Gerhardt said.

The Cabinet of Prime Minister Viktor Orban wants to boost investor confidence with a “new type” of cooperation that doesn’t entail a loan, the Economy Ministry said on Nov. 17. Hungary wants to reach an agreement with the IMF and the EU by February, the ministry said.

“I hope it will be a precautionary credit line in the end,” Gerhardt said.

Hungary was the first European Union country to receive an IMF-led bailout in 2008. The country had the highest public debt level among post-communist EU members at 81 percent of gross domestic product last year.

Hungary will have “no problems” with financing its debt from the market after the IMF announcement, Gerhardt said.

The government scrapped two debt offerings and reduced its offer eight times at auctions in the past three months as demand waned and yields rose.

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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