Hungary is confronted with heightened tensions in financial markets. Long-term interest and credit default swap rates on public debt have risen significantly since spring 2011 (Figure 1, Panels A and B). The sovereign rating was downgraded to noninvestment grade and several debt auctions failed or partially failed in late 2011, which creates high uncertainty ahead of significant public debt rollover needs in 2012 and 2013 (Figure 1, Panel D). In addition, the currency has depreciated sharply, increasing the debt burden in foreign currency (Figure 1, Panels F and C). To help stabilise the markets, the government requested financial precautionary assistance from the European Union (EU) and International Monetary Fund (IMF), and the central bank raised its policy rate by 50 basis points twice in November and December 2011 to 7%.