Friday, December 17, 2010

Moody's lowers Ireland's foreign, local-currency govt bond ratings, outlook negative

KUALA LUMPUR: Moody's Investors Service has downgraded Ireland's foreign- and local-currency government bond ratings by five notches to Baa1 from Aa2. The outlook on the Baa1 rating is negative.

It said on Friday., Dec 17 the negative outlook on the ratings of the government of Ireland was based on its forward looking view 'on the risk that the Irish government's financial strength could decline further if economic growth were to be weaker than currently projected or the costs of stabilising the banking system turn out to be higher than currently forecast'.

Moody's said the rating action concluded the review for possible downgrade that Moody's had initiated on 5 October 2010.

The rating action was in line with the guidance that Moody's gave on Nov 22, in which it indicated the most likely outcome of the rating review would be a multi-notch downgrade that would leave Ireland's rating within the investment-grade category.

'The key drivers for today's rating action are the crystallization of bank related contingent liabilities; the increased uncertainty regarding the country's economic outlook; and the decline in the Irish government's financial strength,' it said.

Moody's also downgraded Ireland's short-term issuer rating to Prime-2 (commensurate with a Baa1 debt rating) from Prime-1. Ireland falls under the Eurozone's Aaa regional ceilings for bonds and bank deposits, which are unaffected by the Irish government's downgrade.

The ratings agency noted the economy's competitiveness and its business-friendly tax environment were credit-positive.

The labour market's flexibility was reflected by the considerable wage adjustment that occurred in the course of the crisis. Moreover, recent economic information, in particular healthy export data was factored into its conclusion.

In a related rating action, Moody's downgraded by five notches to Baa1 from Aa2 the rating of Ireland's National Asset Management Agency (NAMA), whose debt is fully and unconditionally guaranteed by the government of Ireland.

The rating was also placed on review for possible downgrade on Oct 5. The outlook on the NAMA rating is negative, in line with the government bond ratings.

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