FITCH RATINGS downgraded Hungary’s credit grade to junk status today, citing a standoff between the country and the EU and the IMF over rescue loans.

Fitch, which followed similar moves from Moody’s and S&P, kept a negative outlook, indicating a more than a 50 per cent chance for another downgrade within the next two years.

The decision to cut Hungary by one notch, to BB+ from BBB-, was triggered partly “by further unorthodox economic policies which are undermining investor confidence and complicating the agreement of a new IMF-EU deal,” said Matteo Napolitano, Director in Fitch’s Sovereign Group.

Hungary late last year requested financial aid from the EU and the IMF. But the two institutions broke off preliminary negotiations amid concerns over new laws they fear could hurt the independence of Hungary’s central bank.

Government spokesman Andras Giro-Szasz said the downgrade was “surprising” considering statements from Prime Minister Viktor Orban and Tamas Fellegi, Hungary’s chief negotiator in the IMF-EU talks, confirming the country’s intention to soon reach an agreement with the international creditors and the government’s insistence about its support for the independence of the central bank.

This morning, Orban met with National Bank of Hungary President Andras Simor and the government’s top economic officials.

Orban dismissed market speculation that the government was planning to tap central bank reserves to support the state budget and said the government would do everything in its power to support the central bank’s efforts to stabilise the economy.

Hungary’s currency, the forint, fell to all-time lows for two consecutive days this week. Yields on some government bonds jumped more than 2 percentage points in just a few weeks, as investors fretted about the uncertainty over the IMF deal and the government’s economic policies.

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