Rating Action: Moody’s upgrades Hungary’s government bond ratings to Baa3; stable outlook

London, 04 November 2016 — Moody’s Investors Service, (“Moody’s”) has today upgraded Hungary’s long term issuer and senior unsecured government bond ratings by one notch to Baa3 from Ba1. The outlook on the rating is stable.

The key drivers of the rating upgrade are:

(1) The government debt burden, which now benefits from a lower share of foreign currency denominated debt, will continue to gradually decline;

(2) Structural economic improvements will help sustain positive growth rates of 2-2.5% in coming years, supporting economic strength; and

(3) Significant reduction in external vulnerability improves the resilience of Hungary’s credit profile to future external shocks.

The stable outlook on Hungary’s Baa3 rating reflects the balanced risks to the credit rating over the coming years. Moody’s expects the greater predictability in policy making seen in the last couple of years will be sustained, resulting in a more stable, growth-friendly policy environment in Hungary than in the past. At the same time and while we expect some further improvements in the country’s key fiscal and external metrics, in some areas such as the public sector debt burden, the country will continue to lag its Baa-rated peers.

Moody’s has also upgraded by one notch to Baa3 the long term issuer and to (P)Baa3 the senior unsecured Shelf program ratings of the National Bank of Hungary (NBH). The Republic of Hungary is legally responsible for the payments on NBH’s bonds. The outlook on the rating is stable, in line with the outlook assigned to the government’s rating.

As a result of today’s rating action, Moody’s has also raised Hungary’s long-term foreign-currency bond ceiling to Baa1 from Baa2, and the long-term foreign-currency bank deposit ceiling to Baa3 from Ba2. Similarly, the short-term foreign-currency deposit ceiling was raised to P-3 from NP and the short-term foreign-currency bond ceiling was unaffected and remains unchanged at P-2.

Finally, the long-term local-currency bond and deposit ceilings were raised to Baa1 from Baa2.