Ratings agency Fitch has given the Coalition parties a pre-election boost, upgrading its rating on Ireland’s national debt.
The agency said late on Friday it was changing Ireland’s rating from A- to A, with a stable outlook.
The move follows a positive reassessment by Fitch of the prospects for strong economic growth in Ireland and steady improvements in the public finances. At the end of a week in which the unemployment rate fell to 8.6 per cent, the agency also cited a strong projection for further employment growth.
Investors use ratings agency standings to guide decisions on where to put their money, so an upgrade in Ireland’s rating should help to hold down the cost of raising new debt.
Although the assessments of Fitch and its rivals are crucial, Ireland’s borrowing costs have also been compressed by the European Central Bank’s bond-buying campaign.
Irish’s 10-year bond yields are trading at a low level, and the 2026 bond had an interest rate of just under 1 per cent on Friday, having traded around 0.85 per cent during the week.
However, some nervousness ahead of the general election has led to a small increase in the gap between Irish bonds and those of other EU countries such as France and Belgium over the past week or so. The NTMA is due to raise new funds next week, so the Fitch move will be welcome.
Fitch, in a statement, referred to the strong macroeconomic performance and an improving budget picture. It particularly noted the move to a so-called primary budget surplus – a measure of the national borrowing position before repayments on the national debt are included.
Fitch is forecasting a 4 per cent rise in GDP this year and believes Ireland’s debt to GDP ratio is now on a firmly downward path.
The agency has been very positive in previous assessments of the Coalition’s performance, saying after the October budget that some fiscal easing ahead of the election was not a surprise.
Fitch said then the overall budget package was consistent with improving public finances, although it said the stimulus was “pro-cyclical and therefore likely to increase economic volatility”.
At the same time, it said this year’s budget did not change its expectation of further deficit narrowing.
“The sovereign’s fiscal credibility has been underlined by its meeting of the original excessive deficit procedure deadline set nearly five years ago, after reducing the headline deficit by nearly 10 [percentage points]\.”
The upgrade from Fitch came as US bond investor Michael Hasenstab of the Franklin Templeton fund, who bought 10 per cent of the Irish bond market after the State was bailed out, said he had exited his Irish position.
He added, however, that the bonds should continue to perform well. Mr Hasenstab said the recent underperformance of Irish bonds was “short-term noise”, praised the State’s “strong” economy and dismissed any lasting fallout from the “Brexit” debate.
“Irish yields deserve to be more in line with core European yields,” said Mr Hasenstab, who made big profits on his 2011 Irish bet, which he made when the State was locked out of financial markets and its 10-year bond yields peaked around 15 per cent.
