Moody's cuts Ireland's rating

Moody's has cut Ireland's government bond rating to Aa1 from AAA, making it the last of the three main agencies to strip Ireland of its top credit rating.

"Moody's concluded that there was a case for only a moderate rating downgrade at this stage in light of the decisiveness of the policy response as well as the government's strong balance sheet position prior to the crisis," it said.

Standard & Poor's cut its rating last month for the second time this year to AA, while Fitch has downgraded Ireland by one notch to AA+ so far.

The euro hit the day's low against the dollar and the spread between Irish and German government bonds widened after Moody's cut the rating and said the outlook was negative.

Fine Gael deputy leader and finance spokesman Richard Bruton said the cutting of Ireland’s credit rating meant higher costs for the Irish taxpayer on Government borrowing.

"On current forecasts, 75 per cent of income tax will be absorbed in interest payments by 2012," Mr Bruton said.

“While Moody’s recognises that the Government has at last woken up to the realities of its dangerous public finance policy, the IMF’s prediction that the Government will not hit its new borrowing targets must be a source of concern.

“It’s vital that the Government response is not solely about raising taxes, which will chase down the economy. Instead, the Government must set out a solid platform for employment protection and creation if we are to reverse these dangerous trends and the downgrading of Ireland’s credit rating.”