The forint depreciated the most this month after Standard & Poor’s cut Hungary’s credit rating by one step to BB, citing a deteriorating economic outlook.
The currency of Hungary, the most indebted of the European Union’s eastern members, weakened 1 percent to 282.30 against the euro by 7:03 p.m. in Budapest, the biggest daily drop since Oct. 29, according to data compiled by Bloomberg. The yield on 10-year government bonds rose one basis point, or 0.01 percentage point, to 6.93 percent, the data show.
S&P lowered Hungary’s rating to two steps below investment grade, on par with Portugal, Macedonia and Turkey, saying Prime Minister Viktor Orban’s “unorthodox” policies eroded medium- term economic-growth prospects. Levies applied to the financial and services industries may “eventually undermine the government’s efforts to sustainably” reduce debt, S&P said.
“I am negative on Hungary at the moment -- short Hungarian assets,” Timothy Ash, head of emerging-market research at Standard Bank Group Ltd. in London, said in a note to clients. “But this move in the ratings is a bit hard to justify.”
While Hungary is running a fiscal deficit of around 3 percent of gross domestic product and its public debt will fall to 73 percent of output, S&P cut its rating to a level on par with Portugal, which has a deficit of 5 percent and debt of 120 percent, according to Ash.
Hungary’s credit-default swaps fell four basis points today to 298, the highest among Europe’s 17 emerging markets following Ukraine, according to data compiled by Bloomberg. The extra yield on Hungary’s dollar bonds over U.S. Treasuries was unchanged at 370 basis points, according to indexes compiled by JPMorgan Chase & Co.
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