Cyprus credit rating downgraded

Moody’s rating agency has downgraded Cyprus’s credit rating by two notches from A2 to Baa1 over concerns about the economic impact of a deadly explosion which knocked out the island’s main power station.

Moody’s said today that the destruction of the Vasilikos power plant by theblast at a nearby naval base on July 11 has amplified concerns about Cyprus’s fiscal position.

It also said that an “increasingly fractious political climate” in the wake of the explosion raises the risk that planned economic reforms may be watered down or delayed.

The agency also said there is a material risk that the Cypriot government may need to prop up some of the island’s banks because of their substantial exposure to bailed-out Greece.