“It’s difficult to see a return to investment rating until there is improvement in potential growth,” Fitch Director Matteo Napolitano told reporters on the sidelines of a conference in Warsaw today. Changes in economic policy are “crucial” for underpinning the growth outlook as current policy measures “seem to be discouraging investors from taking long-term decisions,” he said.
Hungarian Prime Minister Viktor Orban is struggling to lead the economy out of its second recession in four years after the government’s budget measures contributed to the slump. A new central bank governor, taking office in March, should “bravely use unorthodox tools” to provide monetary stimulus, Economy Minister Gyorgy Matolcsy said last month.
The forint, which was the second-best performing currency last year rising 8.1 percent against the euro, erased earlier gains and traded at 292.65 per euro at 2:18 p.m. in Budapest. The yield on Hungary’s benchmark 10-year government bond rose 9 basis points, or 0.09 percentage point, to 6.32 percent.
Investors are concerned that the central bank would resort to unorthodox monetary policy measures, such as the “severe depletion” of the country’s foreign-currency reserves, once a new governor takes office, Napolitano said.
“I can’t rule it out, but at the same time I don’t think Hungary would risk its hard-won credibility,” he said. “We are not expecting any major shocks.”
Monetary stimulus would damage the economy, Magyar Nemzeti Bank President Andras Simor, whose mandate ends March 3, said yesterday.
If central bank actions “turned unpredictable, that would just make the situation significantly worse for the Hungarian economy,” Simor told reporters in his office in Budapest.
Fitch abandoned expectations for Orban reaching an agreement with the International Monetary Fund, as there’re “simply too many gaps to bridge between the two sides,” Napolitano said.
Hungary turned to the IMF in November 2011 as the forint plunged to record levels and the country was downgraded to junk at Fitch, Moody’s Investors Service and Standard & Poor’s. Talks with the Washington-based lender and the European Union stalled as Orban refused to implement measures recommended by the international institutions.
Fitch rates Hungary BB+, one step below investment grade, with a stable outlook.