SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 28 March 2016ContactsIrina Baron Asst Dir-Research Associate irina.baron@moodys.comXian Li 212-553-1404Senior Research Analyst xian.li@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.In republication, South Africas Sovereign EDF measure, mentioned on page 2, was changed from 18% to 0.18%. In addition, the reason for the vulnerability of South Africas economy to the Fed rate hike was revised to the countrys persistent, although shrinking, current account deficit.Sovereign Risk ReportHungarys Sovereign Credit Risk Drops on Negative Rate PolicyHungarys five-year Sovereign EDFTM (Expected Default Frequency)1 metric, which measures the probability of default over the next five years, increased in the first half of the month from 0.18% to 0.23% as of March 16. The countrys credit risk has declined since then as the US Federal Reserve Bank held off on raising interest rates and scaled back the estimated number of rate hikes in 2016 from four to two. On March 22, the Bank of Hungary cut its overnight deposit rate to -0.05%, making it the first Emerging Market (EM) country to implement negative rates. The central bank also cut its policy rate by 15 basis points to 1.2%. The surprise decision is an attempt to boost economic growth amid weak inflation. The banks unexpected move helped drive down the countrys credit risk further. Hungarys current Sovereign EDF measure of 0.21% is the third lowest among its EM peers, following Korea and the Czech Republics 0.13% and 0.09%, respectively.Despite relatively low credit risk, Hungarys monetary policy actions highlight the worry over the countrys low annual inflation rate, which fell to 0.3% in February, putting it significantly below the central banks target of 3%. The downtrend has been driven by persistently low oil prices and a slowdown in glo...
