Moody's dashes Irish upgrade hopes due to Cyprus crisis

Thursday 28 March 2013 13.45
Moody's says Cyprus bailout increased the risks associated with holding Irish debt
Moody's says Cyprus bailout increased the risks associated with holding Irish debt

Credit agency Moody's has dashed Irish hopes of an investment grade rating following a landmark 10-year bond issue.

It said today that Cyprus' "unprecedented" bailout increased the risks associated with holding Irish debt.

Moody's is the only credit rating agency that ranks Ireland's debt as 'junk'.

It said that, despite Ireland's "steady progress" in regaining market access, it was maintaining its Ba1 rating with a negative outlook due also to issues with the banking sector.

"Ireland's vulnerability to wider euro-area stresses has been reaffirmed by euro area policymakers' handling of the Cyprus crisis," Moody's said in a statement.

The crisis showed policymakers' "increased risk tolerance" and "a more uncompromising and less predictable approach to crisis management,'' it added.

Owen Callan, from Danske Bank, said the rating affirmation was a "big disappointment" as investors had priced in an upgrade.

Ireland took its biggest step yet this month towards exiting its international bailout later this year, selling €5 billion of new benchmark 10-year bonds. It had been hoped that Moody's would at least lift its negative rating outlook after the benchmark issue, the first since the 2010 bailout.

The head of the National Treasury Management Agency John Corrigan said at the time that the success of the auction indicated "either the market is wrong or Moody's is wrong."

But Moody's said despite steady progress, the continued poor asset quality of Ireland's banks, and their likely reluctance to provide new credit when loan demand revives, indicated that the country did not deserve investment grade.