Moody's: ‘Multi-notch’ downgrade most likely for Ireland
Moody’s Investors Service said it may lower Ireland’s credit rating by more than it previously anticipated as the aid plan from the European Union and the International Monetary Fund threatens to boost the country’s debt.
The aid will “crystallise more bank-contingent liabilities on the government balance sheet, and increase the Irish sovereign’s debt burden,” Frankfurt-based Moody’s analyst Dietmar Hornung said in an emailed note today.
Increases in state debt “being discussed exceed the expectation we had in October when we put Ireland’s Aa2 rating on review for downgrade. A multi-notch downgrade” is “now the most likely outcome.”
Ireland yesterday became the second euro-region state to ask for external aid after surging costs to bail out the country’s banks pushed up the budget deficit and eroded investor confidence. The package may total as much as €95bn, further boosting government debt, Moody’s said.
Moody’s placed Ireland on review for a rating reduction in October, when it said it was “most likely” to cut the grade by one level if a downgrade went ahead.
It said today that a “multi-notch” cut would still leave the country within the investment-grade category.
Fitch Ratings on October 6 lowered Ireland’s credit grade to A+ from AA-, the lowest of any of the major rating companies, and said there’s a risk of a further reduction. Standard & Poor’s has a credit rating of AA- on Ireland.
Hannah Warrington, a spokeswoman at Fitch, declined to comment today beyond a statement last week in which the company said it would review Ireland’s sovereign ratings in the light of any package agreed with the IMF and the EU.
The yield spread between Irish 10-year debt and that of Germany, Europe’s benchmark, was at 531 basis points today, down from a record 652 basis points on November 11.