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Forint Weakens a Third Day as BofA Says Hungary Faces Downgrade

The forint weakened for a third day after Bank of America Corp. said Hungary faces a ratings cut to below investment grade and the German government damped optimism of a quick fix to Europe’s debt crisis.

Hungary’s currency depreciated 0.7 percent to 295.3 per euro at 4:32 p.m. in Budapest, after strengthening as much as 0.8 percent earlier today. Government bonds maturing in June 2022 slumped, lifting the yield five basis points, or 0.05 percentage point, to 7.74 percent.

Standard & Poor’s, which rates Hungary BBB- with a negative outlook, may downgrade the country “in the coming weeks,” Raffaella Tenconi, an analyst with Bank of America, said in an e-mailed note today.

Fitch Ratings, which has a BBB- rating with a stable outlook, is likely to review Hungary in the coming six months and may cut the outlook or downgrade the country to BB+ in 2012 “if funding difficulties materialize,” Tenconi said.

“Heightened global risks and still-elevated uncertainty surrounding the government’s policy mix in our view imply a high risk that Hungary will soon lose investment grade status by one rating” company, with another potentially following in the coming year, Tenconi said.

European Union leaders won’t provide the complete fix to the euro-area debt crisis that global policy makers are pushing for at an Oct. 23 summit, Steffen Seibert, German Chancellor Angela Merkel’s chief spokesman, said at a briefing in Berlin today.

Teams from S&P and Moody’s Investors Service will visit Hungary in October to review its rating, Gyula Pleschinger, Chief Executive Officer of the state debt management agency, told a conference on Sept. 30.

Moody’s, which rates Hungary Baa3 with a negative outlook, also the lowest investment grade, is likely to affirm Hungary’s rating and outlook “for now,” Tenconi said.

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