Moody's on Thursday downgraded Hungary's government bonds by a notch to Ba1 with a negative outlook, the ratings firm said.

"Moody's Investors Service has today downgraded Hungary's government bond rating by one notch to Ba1 from Baa3, and is maintaining a negative outlook," it said.

The ratings firm said the main reason for the downgrade was "the uncertainty surrounding the Hungarian government's ability to meet its targets on fiscal consolidation and public sector debt reduction over the medium term, in view of higher funding costs and the low-growth environment."

It also cited the government high debt burden, heavy reliance on foreign investors and large financing needs at a time of market volatility as increasing its susceptibility to "event risk."

The lower rating means that Moody's still believes Hungary is capable of meeting its obligations, but its government bonds now present speculative characteristics.

Hungary was the first member of the European Union to benefit from an international bailout, having been rescued from default in 2008 with a 20 billion euro credit from the International Monetary Fund, the World Bank and the European Union.

With its borrowing costs continuing to rise, however, Budapest yielded to market pressure November 17 in announcing it was prepared to negotiate a new accord with the IMF and the European Union.

Unlike Moody's, Standard and Poor's said Thursday it was holding off on a likely downgrade of Hungary's credit rating until it sees whether it will strike an aid deal with the IMF and EU.

channelnewsasia.com