Moody's has cut its credit rating on Ireland by five notches from Aa2 to Baa1 because of increasing uncertainties over the country's economy and public finances. Moody's also said the Baa1 rating outlook is negative.
The move follows a cut from Fitch last week. It cut Ireland's rating by three notches from 'A+' to 'BBB+'. It said the downgrade reflects the additional costs of restructuring and supporting the bank system as well as weaker prospects and greater uncertainty on the economy.
Moody's said its downgrade reflected the problems in the Irish banking system, the 'increased uncertainty regarding the country's economic outlook; and the decline in the Irish Government's financial strength'.
The negative outlook on the ratings 'is based on the risk that the Government's financial strength could decline further if economic growth were to be weaker than currently projected or the costs of stabilising the banking system turn out to be higher than currently forecast.'
On the positive side, Moody's noted the Irish economy's competitiveness and its business-friendly tax environment, while the labour market is flexible, as reflected in 'the considerable wage adjustment' seen during the crisis.
Moody's shocked financial markets on Wednesday when it placed Spain on review for a possible downgrade, blaming the nation's stretched finances and banking problems and stirring fears the debt crisis could spread even further and threaten the whole euro zone project.
Taoiseach Brian Cowen described the decision of ratings agency Moody's to downgrade Irish sovereign debt as disappointing and a bit excessive.
He said he was particularly disappointed about the agency's decision to adopt a negative rather than stable outlook. This indicates the possiblility of another downgrade in the future.