Fitch Ratings raised its rating on Hungary's long-term foreign currency to 'BBB minus' from 'BB plus', citing high current account surpluses and EU fund inflows among other reasons.
Fitch become the first of the three major agencies to lift Hungary to investment grade category.
The combination of high current account surpluses, high European Union (EU) fund inflows, banks' external deleveraging, the self-financing programme and foreign currency mortgage conversion have contributed to a sharp improvement in Hungary's external balance sheet and reduction in vulnerability, Fitch said.
The cut in bank tax from 2016 illustrated the authorities' commitment to improve the operational environment and we assume the authorities will not introduce any new adverse bank legislation.
Fitch assumes the government will maintain the budget deficit at around 2% of GDP, real GDP growth at 2.0%, some depreciation in the exchange rate and a gradual recovery in prices towards the 3% target. Government debt will slowly decline in the medium term, to 67% of GDP by 2022. Fitch assumes that under severe financial stress, support for Hungarian subsidiary banks would come first and foremost from their foreign parent banks.
