Moody’s may cut Ireland’s rating after €50bn pledge

IRELAND’S credit rating may be cut by Moody’s Investors Service after the Government pledged as much as €50 billion to save the country’s banks.

Ireland’s Aa2 rating will “most likely” be cut by one level if a downgrade goes ahead, the company said.

A downgrade by Moody’s, which will finish its review within three months, will bring Ireland’s rating into line with those of Standard & Poor’s and Fitch.

“We’re monitoring the banking system, which we now see has led to additional capitalisation needs,” Dietmar Hornung, Frankfurt-based Moody’s analyst, said, adding the Government won’t need outside aid.

“The focus is on Ireland’s ability to recover financial strength.”

The country’s deteriorating finances have fuelled 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 in Dusseldorf.

“There may be some slight under-performance, but we don’t expect a massive sell off.”

The Department of Finance will publish a four-year plan next month that aims to narrow the deficit to below the European Union limit of 3% of gross domestic product (GDP) by the end of 2014. Ireland’s Government deficit as a percentage of GDP will likely rise to a record 32% this year.

Standard & Poor’s cut Ireland’s credit rating one step, to AA- on August 24, while Fitch has a AA- rating. Ireland’s debt level will peak at 120% of gross domestic product in 2014 “if everything goes well,” Danske Bank said.

The economy is weakening even as the Government prepares to bailout the banks again.

The economy will expand 0.2% this year instead of 0.8% forecast in July, the Central Bank said in its quarterly bulletin yesterday.

It lowered its growth forecast for next year to 2.4% from 2.8%.