Ireland close to junk status after latest rating cut

IRELAND’S sovereign rating is in danger of being cut again as it hovers close to junk status.

Borrowing costs rose after ratings agency Moody’s cut Ireland’s credit rating to the lowest investment grade. They also kept their outlook on negative, pushing the euro lower.

The moves comes just a day after another ratings agency, Fitch, upgraded their outlook on Ireland.

Moody’s said Ireland’s growing debt would be high by EU standards and weak economic growth prospects, along with the expected decline of the Government’s financial strength, threatened its ability to manage the burden.

“Should the intended fiscal consolidation goals not be met, a further rating downgrade would likely follow,” Moody’s said.

“Moreover, a further deterioration in the country’s economic outlook would also exert downward pressure on the rating.”

Moody’s said the downgrade to BAA3 from BAA1, which puts it two notches below both Fitch and Standard & Poor’s, was also due to uncertainty around solvency tests required by the European Stabilisation Mechanism.

Moody’s adds that the Government’s commitment to fiscal adjustment remains strong and with increasing competitiveness provides Ireland with longer-term growth prospects “higher than those of many other advanced nations”.

Davy economist Barry Dixon said the move by Moody’s was a “surprise”.

“It is interesting however that both Fitch and Moody’s are now talking more positively about Ireland’s longer-term growth prospects,” he said.

This week the IMF cut its forecast for GDP growth to 0.5% from 0.9%, saying it did not expect Ireland to meet the target of getting its budget deficit under an EU limit of 3% by 2015.

A Moody’s official said the chances of Ireland having to restructure any of its debt were very remote.

Goodbody economist Dermot O’Leary said: “I still think we will maintain investment grade, but at the same time the risks around achieving debt sustainability are to the downside.

“It’s absolutely all about growth now. I think we’ve parked the banking issue which is a positive and you can get that from the readings of the ratings agencies’ views.”