International ratings agency Standard and Poor's on Monday cut Ireland's sovereign credit rating as the nation's finances were savaged by a costly rescue package for the banking sector. The agency said in a statement that it has lowered its long-term sovereign credit rating on the Republic of Ireland to AA from AA+ and maintained its negative outlook.
On the foreign exchange market, the European single currency lurched as low as 1.3806 dollars following the news, but later pulled back to 1.3828. S&P in March slashed Ireland's rating to AA+ from the previous top-ranked AAA level amid a severe recession in the eurozone member nation.
"We have lowered the long-term rating on Ireland because we believe that the fiscal costs to the government of supporting the Irish banking system will be significantly higher than what we had expected when we last lowered the rating in March 2009," said S&P credit analyst David Beers in the release.
"Consequently ... the net general government debt burden will also be significantly higher over the medium term," he added. The AA rating is two notches below the top AAA ranking but still means on the S&P scale that Ireland has a "very strong" capacity to repay its borrowings.
The Irish government said in May that it would inject up to 4.0 billion euros (5.5 billion dollars) into Anglo Irish Bank, recently nationalised by Dublin, subject to European Union approval. Anglo Irish Bank last month posted a pre-tax loss of 4.1 billion euros in the six months to March compared to a year earlier.
Beers added on Monday: "Our revised (ratings) opinion follows the recent announcement by Anglo Irish Bank of losses at the upper end of S&P's expectations, as well as the government's announced intentions regarding the scope of the operations of NAMA, which is set to play an important role in bolstering the financial health of the Irish banking system."
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