Bloomberg News

Forint Slumps to 2 1/2 Year Low on Hungary Credit Downgrade Risk

October 26, 2011

Oct. 26 (Bloomberg) -- The forint dropped to the weakest in 2 1/2 years and Hungary’s government bonds slumped after a weekly newspaper reported Economy Minister Gyorgy Matolcsy said that the country faced the threat of a ratings downgrade.

Hungary’s currency depreciated 1.5 percent to 302.3 per euro by the close in Budapest, the weakest since April 2009. The country’s bonds maturing in 2014 fell, lifting the yield 18 basis points, or 0.18 percentage point, to 7.03 percent. The benchmark BUX index of stocks sank 2.7 percent.

Hungary is under a “real threat” that one of the major rating companies will cut the country’s credit to junk, Matolcsy told Heti Valasz in an interview to be published tomorrow, a copy of which was obtained by Bloomberg News. Hungary is rated at the lowest investment-grade ranking by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

“The minister is just being realistic,” Timothy Ash, the head of emerging-market research at Royal Bank of Scotland Group Plc in London, wrote in an e-mail. “The investment story in Hungary has deteriorated of late.”

The government and the central bank are in talks about a monetary stimulus plan, which may involve the Magyar Nemzeti Bank buying mortgage notes and corporate bonds, Matolcsy said, according to Heti Valasz.

European stocks fell, erasing earlier gains, as a European Union official said talks between policy makers and banks on bondholder losses as part of a second Greek rescue package are deadlocked.

--Editors: Linda Shen, Stephen Kirkland

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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