Cantillon: still hard to judge the mood of Moody’s

Credit rating agency Moody’s is scheduled to review its assessment of Irish debt on Friday, raising questions as to whether it delivers an upgrade to the A level from its current Baa1 judgment.

This makes an outlier of Moody’s: Standard & Poor’s has an A+ rank on Ireland; Fitch has an A. But not for long? Well, maybe. Or maybe not.

Moody’s review comes one week after Enda Kenny’s new minority government took office, ending a 70-day political hiatus. Only time will tell whether this proves durable.

In his new Debt Digest report, however, Davy strategist Donal O'Mahony argues that fragile foundations "conceal the enlightened self-interest of both major parties" to ensure a stable government.

“Removal of political uncertainty and reaffirmed policy prudence a timely hat-tip to Moody’s, whose two-year inaction over Ireland’s rating [is] at odds with profound improvements in creditworthiness,” says O’Mahony.

“To be sure, Moody’s have not been alone in playing catch-up to Ireland’s economic and fiscal out-performance in recent years. However, where this agency has played a solo run is in relation to Ireland’s credit rating.”

An upgrade on Friday would hardly be out of kilter, he argues, even in the shadow of Brexit uncertainty. Given Moody’s conservatism and uncertainty over the British referendum, you might think the agency would wait another while before any upward move.

For all of Mr O’Mahony’s confidence, Fitch itself says political uncertainty “has not been eliminated”. To be fair, Fitch observes a reduction in uncertainty.

But it adds that the extent to which the government programme will be executed is unclear. Citing the pledge to take “all necessary action” to tackle high variable mortgage rates, Fitch also said a lack of detail made it difficult to pinpoint the impact on lenders.

That was before Michael Noonan emerged from Merrion Street with emollient words. “I am assuring the rating agencies and the markets that there is nothing in the programme for Government that will run counter to the best interest of the banks.” So now we know.