Moody's Investors Service upgraded Ireland's credit rating on Friday, giving a further vote of confidence to the first euro zone country to complete an EU/IMF bailout last year. Moody's raised Ireland's rating by two notches to Baa1 from Baa3 and with a stable outlook, saying a recent pick-up in growth momentum would speed up fiscal consolidation and cut government debt faster.
"Ireland's credit profile is recovering more quickly from the euro area debt crisis as a result of its economy's dynamism and growth prospects," the credit agency said in a statement. Moody's had upgraded Ireland to investment grade in January, handing the government a major boost a month after it completed the European Union/International Monetary Fund bailout.
With Irish debt already rallying, that upgrade further opened it up to investors prohibited from buying junk-rated paper. Yields have continued to fall and are now below 2.7 percent for 10-year paper, versus a mid-2011 high of 15 percent. Ireland's bailout exit has been relatively smooth, having made a strong return to bond markets and with an economy set to grow about 2 percent this year. But its debt load remains one of the euro zone's highest, at about 120 percent of national output.
"Moody's upgrade means that all of the three main rating agencies now have Ireland rated at BBB+, or equivalent, which clearly ranks Ireland as an investment-grade credit and reflects the confidence in Ireland shared by investors generally," said John Corrigan, head of the country's debt agency. Ireland is already funded into 2015 and Corrigan's National Treasury Management Agency (NTMA) has sold more than 80 percent of its programme for this year, taking advantage of positive investor sentiment as it resumed regular bond auctions.
At the height of the euro zone crisis in July 2011, Moody's cut Ireland's rating to Ba1, one notch below former financial market pariah Colombia, and that prohibited large, mainly Asian-based ratings-sensitive funds from touching Irish debt. But despite having a debt and budget deficit among the highest in Europe, Ireland has kept investors on its side by consistently hitting fiscal targets. Standard and Poor's and Fitch rate Irish debt three notches above junk status at BBB+. S&P lifted its outlook to positive last year while Fitch has a stable outlook. New EU rules require credit agencies that operate in Europe to lay out the dates on which they review a country's rating.
"The recovery in the Irish property market has resulted in a considerable recent reduction in government contingent liabilities," Moody's said. "However, Ireland's credit profile and rating remain constrained by the country's high public debt level, still-sizeable fiscal deficits and significant banking sector risks, including a high stock of non-performing loans."
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