Moody’s raised Ireland’s sovereign debt rating on Friday, pulling it out of junk territory to an investment-grade “Baa3” in recognition of the eurozone country’s exit from a huge EU-IMF rescue program.
One month after Ireland reclaimed its economic independence, the ratings agency also placed the country on a positive outlook, citing the economy’s growth potential and improved debt outlook.
The one-notch ratings increase from “Ba1,” which had weighed on Ireland’s ability to raise funds on capital markets, was tied to a recent rise in economic growth.
Moody’s lead analyst for Ireland, Kristin Lindow, said the positive outlook suggested improved sentiment for the cash-strapped eurozone nation.
“The upgrade reflects the growth potential of the Irish economy, which together with the fiscal consolidation, expected to continue over the next few years, will help bring down the very high debt levels,” Lindow said.
Moody’s said that Ireland exited its program of support from the EU and the IMF on Dec. 15 “on schedule, with improved solvency and restored market access.”
“Its ability to do so without a precautionary credit line reflects that the government’s reform agenda stayed largely on track” despite challenging economic conditions inside and outside the country, the agency said.
“The decision by Moody’s to upgrade Ireland’s credit rating reflects the significant progress that has been made in stabilising the public finances, restructuring the banking sector and, most importantly, growing the economy and creating jobs,” Irish Finance Minister Michael Noonan said in a statement.
“Ireland is now rated at investment grade by all of the major credit rating agencies, highlighting the major improvement in investor sentiment towards Ireland,” he said.
Analysts said this would now increase the possibility of further investment in Ireland.
“This is quite a significant move because a lot of investors can only invest in assets which are rated investment-grade by all three of the big three ratings agencies,” Investec Ireland chief economic Philip O’Sullivan said.
“Now that this barrier has been lifted I think the results from this should be a further reduction in our country’s borrowing costs,” he said.
Dublin raised 3.75 billion euros (US$5.1 billion) in a 10-year bond auction last week, enjoying huge demand for its first bond issue since exiting the bailout program.
Bond prices surged ahead of the expected move by Moody’s. The 10-year yield fell from 3.28 percent on Wednesday to about 3.17 percent late on Friday.
“Today’s upgrade will have benefits for the economy as a whole by putting downward pressure on the price of credit for companies and organizations in Ireland who are reliant on the financial markets for funding,” Noonan said.
Ireland’s economy was severely battered by a banking crisis and the country’s overreliance on the construction sector that imploded when the global crisis hit.