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Hungarian Junk Rating Would Be ‘Ridiculously Harsh,’ RBC Says

Hungary’s plans to narrow its budget deficit means rating agencies won’t cut the country’s rankings below investment grade, RBC Capital’s Nigel Rendell said.

Moody’s Investors Service lowered Hungary’s credit rating two levels to Baa3 on Dec. 6, the lowest investment-grade ranking, on concern that the government’s policy of plugging budget holes with “temporary measures” such as levying special taxes on the banking and energy industries and taking over private pension assets isn’t sustainable.

“I don’t think there is any justification for putting Hungary into junk status,” Rendell, a London-based strategist with the bank, said today in an interview. “That would be ridiculously harsh.”

Hungarian lawmakers earlier this week approved the framework of the 2011 budget, which targets a reduction of the deficit to below the EU’s 3 percent limit for the first time since the country joined the bloc. The most indebted eastern member of the EU, Hungary’s deficit has declined from 9.3 percent of gross domestic product in 2006 to a targeted shortfall of 3.8 percent for this year.

The euro area’s deficit was 6.3 percent of GDP as of December 2009, with Spain, Ireland, Greece and the United Kingdom with gaps of more than 10 percent, according to data compiled by Bloomberg.

The Moody’s downgrade brought the ratings company in line with Standard & Poor’s, while Fitch Ratings ranks Hungary one step higher at BBB. Moody’s has a negative outlook for the country, meaning it is more likely to reduce the rating to junk than it is to raise or keep it unchanged.

The Hungarian government plans to cut the budget deficit to 2.94 percent of gross domestic product in 2011.

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