Ireland’s rating 'may be downgraded by Moody’s
Published 05/10/2010 | 09:47
Ireland’s credit rating may be cut by Moody’s Investors Service after the Government pledged as much as €50bn to save the country’s banks.
Ireland’s Aa2 rating will “most likely” be cut by one level if a downgrade goes ahead, the ratings company said in a statement today.
Moody’s, which cut the country’s rating in July, will finish a review within three months.
“Ireland is on a trajectory toward lower debt affordability over the next three to five years,” said Dietmar Hornung, Moody’s analyst for Ireland in the statement.
Finance Minister Brian Lenihan said on September 30 the cost of repairing the country’s financial system may ultimately rise to about a third of gross domestic product.
The country’s deteriorating finances have fueled investor concerns it would become the first government after Greece to tap the €750bn rescue fund set up by the European Union and International Monetary Fund to stanch the debt crisis.
“On the back of all the banking troubles, the rating agencies are trying to figure out the impact on the public finances,” said Michael Leister, a fixed-income analyst at WestLB AG in Dusseldorf.
“There may be some slight underperformance, but we don’t expect a massive selloff.”
The yield spread between Irish 10-year debt and that of Germany, Europe’s benchmark, was at 407 basis points today after widening to a record 449 basis points on September 28.
The Government last month canceled bond auctions in October and November, as yields surged.
The Government has pumped €22.9bn into Anglo Irish Bank since it seized the lender in January 2009 as its bad loans soared.
The bank may need up to an extra €6.4bn of capital, rising by another €5bn in the event of unexpected losses.
Lenihan said last week the Government will take a majority stake in a second lender, Allied Irish Banks.
The economy will expand 0.2pc this year instead of 0.8pc forecast in July, the Central Bank said in its quarterly bulletin yesterday.
It lowered its growth forecast for next year to 2.4pc from 2.8pc.