The international ratings agency Standard and Poors has downgraded Ireland's credit rating from AA to AA-.
The AA rating is defined by S&P as meaning that a borrower has a 'very strong capacity to meet financial commitments'.
However, the agency warned of a further downgrade if fiscal costs of supporting the banking sector continued to rise.
It said the cost of support to the banks will weaken the Government's financial flexibility over the medium term.
S&P is the last of the major ratings agencies to downgrade Ireland's credit rating this year.
The downgrade may make it more expensive for the Government to borrow money, as investors may seek a higher interest rate.
The National Treasury Management Agency (NTMA) said that Ireland still maintained a double A rating from the five rating agencies.
The NTMA said that Ireland had a higher rating than 'Portugal, Italy and a number of other EU countries'.
In a statement the NTMA said: 'Investors continue to show strong demand for Irish Government debt with the most recent bond auction receiving bids for 3.4 times the maximum amount of bonds on offer.
'In terms of the specific analysis by S&P, this is largely predicated upon an extreme estimate of bank recapitalisation costs of up to €50bn.
'Moreover, it does not attribute any current value to the State's investments in the banks through the National Pensions Reserve Fund.
'In addition, S&P also add the full cost of NAMA's liabilities of €40bn while ascribing no value whatsoever to its assets at the current time.
'We disagree with this view as both the liabilities and the assets of NAMA will be realised over the medium term.
'We believe this approach is flawed and note that S&P accepts that it does not accord with the internationally accepted measure of government net debt.'
