The Government’s attempts to make a sustainable exit from the EU/IMF bailout programme have been dealt a fresh blow with the news that credit ratings agency Moody’s has reaffirmed Ireland’s sub-investment grade rating with a negative outlook.
Moody’s is the only one of the three big ratings agency to have Ireland classified as junk status. The Ba1 rating excludes certain types of investment funds from investing in Irish sovereign debt.
Moody’s attributed the eurozone’s ongoing debt crisis and vulnerability to shocks, particularly the recent decision to “bail-in” Cypriot bank depositors, as part of the reason for the leaving the rating unchanged.
“The [Cyprus] move has significantly heightened fears surrounding the safety of bank deposits in other European systems.
“More generally, Moody’s believes that Ireland’s vulnerability to wider euro area stresses has been reaffirmed by euro area policymakers’ handling of the Cyprus crisis, the increased risk tolerance apparent in their actions, and the uncertain risk assessment prompted by a more uncompromising and less predictable approach to crisis management.”
The continued poor asset quality of the banking system was also cited by the agency. However, Moody’s does not expect that the banks will have to raise more capital following the next round of stress tests.
However, Moody’s noted the Government’s progress in meeting and sometimes exceeding the terms of the EU/IMF bailout programme. The country’s successful re-entry to the bond markets over last year and this year was seen as a positive.
Moreover, the improvement in the competitiveness of the economy, the continued flow of foreign direct investment, and the apparent bottoming out of the housing market were also noted by the credit ratings agency.
Ireland’s Ba1 rating could be downgraded further if additional banking sector liabilities were to unfold, or if the fiscal deficit position should deteriorate.
Moody’s is the only one of the three big ratings agency to have Ireland classified as junk status.
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