Seeking Alpha
Profile| Send Message|
( followers)  

Moody’s today downgraded Ireland’s foreign- and local-currency government bond ratings by five notches to Baa1 from Aa2, thereby concluding the review for possible downgrade initiated on 5 October 2010. The outlook on the Baa1 rating is negative.

The rating action is in line with the guidance Moody’s gave in a comment published on 22 November 2010, in which Moody’s indicated that 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 the decision to downgrade Ireland’s government bond ratings are as follows:

  1. the crystallization of bank-related contingent liabilities;
  2. the increased uncertainty regarding the country’s economic outlook; and
  3. the decline in the Irish government’s financial strength.

Moody’s negative outlook on the ratings of the government of Ireland is based on our 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 stabilizing the banking system turn out to be higher than currently forecast.

Moody’s has 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.

In reaching this decision Moody’s notes that the economy’s competitiveness and its business-friendly tax environment are credit-positive. The labour market’s flexibility is reflected by the considerable wage adjustment that occurred in the course of the crisis. Moreover, recent economic information, in particular healthy export data are factored into our conclusion.

Source: Key Drivers of Moody’s Decision to Downgrade Ireland to Baa1