Fitch cuts Ireland's credit rating due to downturn
RATINGS AGENCY Fitch yesterday cut Ireland’s credit rating by two notches, citing the severity of the economic and fiscal downturn.
The move – the second in just over six months after a cut in April – reduced Ireland’s sovereign rating to “AA-” from “AA+”, skipping the “AA” rating. But the agency put the outlook for the rating going forward on stable due to the Government’s aggressive measures to solve the problems.
The euro trimmed gains against the dollar and the yen while the spread between Irish and euro zone government bond yields widened on the Fitch move.
Ireland has regained some investor confidence with a commitment to cut the budget deficit and to pay €54 billion to cleanse banks of their risky commercial property assets through the National Asset Management Agency (Nama).
However, Fitch said Ireland’s much steeper recession than in most other developed countries and the debt burden associated from establishing Nama contributed to its rating change.
“The agency notes the vigour of the Government’s fiscal consolidation response to date, the expectation of further aggressive budget tightening and the likely success of Nama in rehabilitating the banking sector,” it said.
“All these factors have helped stabilise the outlook for Ireland’s creditworthiness.”
The 10-year Irish Government bond yield rose, widening the spread against euro zone benchmark German Bunds by two basis points to 148 basis points after the Fitch news.
Five-year Credit Default Swaps, which price the cost of insuring Irish bonds, widened to 144.7 basis points from 142.4 basis points, monitor CMA DataVision said.
Although Nama’s debt is likely to be accounted outside the Government’s balance sheet, Fitch said it would still make gross Government debt more than quadruple to 110 per cent of gross domestic product by the end of 2010 from 25 per cent in 2007.
“The positive thing that you can take from this is that they kept the outlook stable which is probably more important,” Goodbody analyst Dermot O’Leary said.
Fellow ratings firm Moody’s stripped Ireland of its top “AAA” rating in July. – (Reuters)