In another blow to the Hungarian government after the International Monetary Fund and the European Union suspended talks on its economic programme, rating agency Moody's placed Hungary's sovereign rating under review for possible downgrade. Elsewhere, its peer Standard & Poor's threatened to cut the country's rating to junk.
Moody's placed Hungary's Baa1 local and foreign currency government bond ratings on review for possible downgrade on Friday. The rating agency also kept the National Bank of Hungary on review for downgrade. It said increased uncertainty regarding Hungary's fiscal outlook and economic prospects, as a result of the recent breakdown of talks with the IMF and EU, prompted it to take the decision to initiate this review.
An IMF mission to Hungary returned to Washington last Saturday without concluding the review of the country's programme to balance its public finances. This consequently suspended next disbursement from the EUR 20 billion loan programme jointly offered by the IMF and EU in late 2008.
The Hungarian government, led by Prime Minister Viktor Orban, has planned a bank levy, which the IMF and EU said would have a significant negative impact on the country's investment climate and economic growth. Moody's said the government's planned bank levy represents a further potential drag on economic activity. But, the government declared that it will not implement further austerity.
"The failed talks between the IMF/EU and Hungary's government about the country's loan programme -- which represents a crucial policy anchor for Hungary -- has increased uncertainty about the authorities' determination to restore fiscal sustainability in the near term," said Dietmar Hornung, Moody's lead analyst for Hungary.
"By espousing fiscal deficits above those recommended by the IMF and EU, Moody's believes that the Hungarian government has increased the uncertainty over whether its debt affordability will stabilize within the next two to three years," Hornung said.
He also said the rating agency is likely to confirm the country's current rating if there is a credible commitment to the IMF's previously proposed fiscal targets and if other macroeconomic indicators remain positive. However, if the new fiscal targets that emerge from the next round of talks imply a less rapid fiscal consolidation path, then a one-notch rating downgrade is likely.
Although a multi-notch downgrade is unlikely, Moody's said that this could be prompted by a lengthy impasse in programme negotiations, which would likely have adverse exchange rate and interest rate consequences. The rating agency believes that the Hungarian central bank may be forced to raise policy interest rates on concern over the impact of exchange rate depreciation on the foreign debt-servicing costs of both public and private sector borrowers. In July, Hungary's central bank retained its key interest rate of 5.25% for the third straight month.
Further, Moody's placed Hungary's Baa1 foreign currency bank deposit ceiling on review for possible downgrade in a related action. The rating agency noted that this ceiling reflects the risk that the Hungarian government would freeze foreign currency deposits to conserve scarce foreign currency resources during a crisis. However, the outlook on Hungary's Aa2 country ceiling for foreign currency debt remains stable. Moody's also placed the Baa1 foreign currency government bond rating of the National Bank of Hungary on review for possible downgrade.
S&P revised its outlook on Hungary to negative from stable and affirmed its BBB-/A-3 rating. The BBB- rating is the lowest investment grade by the firm.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.