Irish Credit Rating Takes a Hit

Citing growing bank liabilities, weaker growth, and reduced revenue streams for the government, Moody’s pulled the trigger on a downgrading of Ireland’s credit rating earlier today. The New York-based ratings agency dropped Ireland’s rating from Aa1 to Aa2 – “Aa” suggests that Moody’s still rates Irish debt as having very low credit risk, but the long-term risk is now a greater concern and this is reflected in the change from 1 to 2 in the rating grade.

Longer-term growth fears were confirmed in comments made by Moody’s analyst Dietmar Hornung. When explaining the downgrade, Hornung noted that the rating change does not reflect a “sudden, dramatic shift”, but does take into consideration fears of a “gradual, significant deterioration”.

“Today’s downgrade is primarily driven by the Irish government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability,” said Hornung.

It was almost exactly a year ago that Moody’s last revamped its rating for Ireland,when it dropped Ireland’s bond credit rating to Aa1 but with a “negative” longer-term outlook. Today, Moody’s upgraded the outlook to “stable”, saying that it expects economic growth to be positive for the next three years, but falling short of Ireland’s historical growth rate.

The downgrade will certainly increase the government’s cost to borrow, but an ING Group NV spokesperson said they expect tomorrow’s debt sale to still be successful. An estimated €1.5 billion of five and ten-year bonds is expected to be sold at tomorrow’ auction.

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