By Stephen Nakrosis

S&P Global Ratings said it lowered the long- and short-term foreign and local and currency ratings on Hungary to BBB-/A-3 from BBB/A-2, adding its outlook on the country is stable.

S&P said the downgrade comes on the heels of economic shocks to Hungary "in the context of the Covid-19 pandemic and the Russia-Ukraine conflict, which have impaired the policy flexibility of fiscal and monetary authorities."

"Persistently high inflation, exchange rate volatility, and external pressures have prompted the Hungarian National Bank to tighten its policy stance through a series of conventional and unconventional measures," the ratings agency said.

High energy prices, rising interest costs and an uncertain outlook for the economy will pose challenges to the Hungarian government's consolidation plans, S&P said.

The nation's economy will likely avoid a contraction for the full year, S&P said, but added "economic risks remain elevated and policy flexibility to react to shocks is impeded."

The stable outlook reflects expectations Hungary's economy will avoid a substantial downturn over the next two years and weather the indirect effects of the Ukraine conflict, S&P said.

Write to Stephen Nakrosis at stephen.nakrosis@wsj.com

(END) Dow Jones Newswires

January 27, 2023 16:57 ET (21:57 GMT)