Moody’s Investors Service cut Hungary’s rating from its lowest investment grade to junk on Thursday, with a negative outlook, despite the country’s appeal to the International Monetary Fund for help last week. Hungary is rated at the lowest investment grade by Fitch and Standard & Poor’s.
Up till now, according to a Bloomberg report, Hungary had avoided seeking any assistance from the IMF. The country takes an “unorthodox” approach to economic policies, including compelling banks to accept exchange rate losses on mortgage loans made in foreign currencies.
The country’s prime minister, Viktor Orban, has said that he does not want conditions attached to new credit lines; such conditions could forestall the policies Hungary has in place. However, after the forint hit a record low this month against the euro and yields on government bonds rose precipitately, the government finally turned to the IMF for help.
Aurelija Augulyte, a Copenhagen-based economist at Nordea Bank, was quoted in the report saying, ‘‘Hungary’s attempts last week to voice readiness to cooperate with IMF was a ‘show,’ which was meant to prevent the rating agency action, yet it didn’t help, given Hungary’s unwillingness to compromise. Moody’s interpreted the Hungarian attempt to seek assistance from the IMF as a desperate move.” The forint has been the world’s worst performing currency against the euro in the last six months; in that time it has fallen 15%.