LONDON - Ireland's debt rating was downgraded by Moody's
on Thursday amid mounting worries about the country's public finances
and the cost of the government's bailout of the banking system.The
New York-based agency said it had lowered its rating by one notch to AA1
from the top AAA level and warned that another downgrade was possible.
Moody's, which in April had put the country on warning of a possible
downgrade, was the last of the big three ratings agencies to take the
step.
"The pronounced weakness in economic activity has been translating
into a severe deterioration of Ireland's public finances, and the
country is set to emerge from the current economic crisis with a
considerably higher debt burden for the foreseeable future," said
Dietmar Hornung, a vice president at Moody's.
Hornung said the government's commitment to pump more than €11
billion ($15.5 billion) into three Irish banks had worsened its own
ballooning deficit, while its plans to buy up the banks' defaulting
debts and transfer them into a new state-owned "bad bank" could cost
tens of billions more. Nonetheless, he said the government's "strong
balance sheet position prior to the crisis" meant the current credit
downgrade should be modest.
Typically, credit downgrades raise the cost of borrowing, and traders
on Thursday quickly began demanding higher rates on purchases of Irish
government-underwritten bonds.
Moody's was the last of the big three agencies to strip Ireland of
its AAA rating. Standard & Poor's twice has cut Ireland's rating, most
recently last month, while Fitch has already lowered its rating by one
level and is mulling a second cut.
