Bloomberg News

Hungary Junk Grade Is ‘Real Threat,’ Matolcsy Tells Valasz

October 26, 2011

(Updates credit rating in third paragraph, quote in fourth, market in fifth.)

Oct. 26 (Bloomberg) -- Hungary is under a “real threat” that one of the rating companies will cut the country’s sovereign-credit grade to junk, Economy Minister Gyorgy Matolcsy said in an interview with Heti Valasz.

Asking the International Monetary Fund for a new loan would be a “sign of weakness,” Matolcsy told the weekly, according to an interview to be published in Heti Valasz tomorrow, according to a copy sent to Bloomberg by the magazine. The government and the central bank are in talks on a monetary stimulus plan, he said.

Hungary, the first European Union member to obtain a bailout in 2008, is rated the lowest investment grade by Standard and Poor’s, Fitch Ratings and Moody’s Investors Service. The country had the highest public debt level among post-communist EU members at 81 percent of gross domestic product last year.

“There is a real threat” of a downgrade to junk “at one of the credit rating companies, but even if this were to happen, it wouldn’t boost risk premium,” Matolcsy told Heti Valasz.

Hungary’s currency fell 1.6 percent to 302.55 per euro by 4:54 p.m. in Budapest, its weakest level since April 2009. State bonds maturing in 2014 weakened, lifting the yield 17 basis points, or 0.17 percentage point, to 7.02 percent.

Foreign-Currency Loans

Hungary, where two-thirds of mortgage loans are denominated in Swiss francs, is struggling to help borrowers after the Alpine currency rose to a record, boosting defaults and pushing up monthly payments. Prime Minister Viktor Orban this month said the government is considering “unexpected, uncharted” measures to escape its franc-debt trap.

The goal is to “chip away as much of the nearly 5 trillion forint ($23.3 billion) household foreign-currency loan stock as possible” first and then help companies and local governments with foreign-currency debt, Matolcsy said.

“We’re currently working on the creation of an alternative financing system,” Matolcsy told Heti Valasz. “We have to do this in such a way that we preserve the functioning of the banking system and the economy’s growth potential.”

Hungary may create a state-owned bank and recapitalize existing state lenders as part of a drive to replace foreign- currency loans with forint ones, Matolcsy told the weekly. The government may also subsidize loans of small- and medium-sized companies to allow them to convert foreign-currency loans into forint-denominated ones, Matolcsy said.

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.

--With assistance from Andras Gergely in Budapest. Editors: Alan Crosby, Balazs Penz

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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