“The ongoing sharp fall in external and FX-denominated government debt, together with a more predictable operating environment for banks and an ongoing solid fiscal position, should be enough to warrant upgrades, we think”.

Hungary’s current “BB+/Ba1” sovereign credit rating is a single notch below investment grade, and two major credit rating agencies, Fitch Ratings and Moody’s Investors Service, have now upgraded their outlook on Hungary’s ratings to positive, implying a potential rating upgrade.

In terms of monetary policy, Morgan Stanley’s economists said that with the economy slowing, inflation rising on base effects but staying well below target and the ECB set to administer more QE, the National Bank of Hungary (NBH) seems to have another window to ease policy further.

“If, as we expect, inflation slows down in the second quarter (after an expected sharp rise early next year), the NBH could easily revert to an easing stance and cut rates to around 1% later in the year”, Morgan Stanley’s analysts said.

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