Dec. 22 - Standard & Poor's cut Hungary's long-term credit rating to 'junk' status, blaming the centre-right government's unpredictable policies and renewed meddling with the independence of the central bank. Joanne Nicholson reports.
Cut to junk status for the second time in a month - this time by the credit ratings agency Standard & Poor's. Hungary's government says the decision by S&P, which follows a similar decision by Moody's, is unjustified. Government spokeswoman Andras Giro-Szasz. (SOUNDBITE) (Hungarian) ANDRAS GIRO-SZASZ, GOVERNMENT SPOKESMAN SAYING: "There has been no change in the fundamental bases of the Hungarian economy in the past month so the government is puzzled by the S&Ps downgrade. The cabinet has no knowledge of any change that would justify it." The market's reacted to S&P's move by sending the Forint lower and bond yields higher. Citibank analyst, Eszter Gargyan, predicts the FULL effect probably won't be felt until after Christmas: (SOUNDBITE) (English) ESZTER GARGYAN, CITI GROUP ANALYST, SAYING: "Since the market is really thin, most traders are off to Xmas holidays already, theres low liquidity so we didnt see any huge reactions, bond yields are about 20-30 basis points higher and the HUF has weakened about one percent against the Euro. But I believe that markets are still focusing on the outcome of IMF negotiations so rating action is likely to have only short-lived woes." Financial assistance talks with the International Monetary Fund and the European Commission were called off last week following a dispute over a proposed law which would expand the monetary council of the country's central bank. The EU has asked for it to be withdrawn over concerns it breaches EU law. The ECB is concerned it could erode the bank's independance. S&P said its decision to downgrade to below investor level was based on Hungary's centre-right government's unpredictable policies. Many now expect that Prime Minister, Viktor Orban's government will make further amendments to the controversial bill because without an IMF deal, a severe funding squeeze would have political costs he couldn't afford. Joanne Nicholson, Reuters