Fitch Ratings lowered Ireland's credit grade to the lowest of any of the major rating companies and said there's a risk of a further reduction.
Ireland was cut to A+ from AA-, reflecting the "exceptional and greater-than-expected cost" of the nation's bailout of its banking system, Fitch said in a statement today.
The move comes a day after Moody's Investors Service said the country's rating may be cut. Ireland said last week the cost of repairing its financial system may rise to as much as €50 billion, pushing its budget deficit this year to a record 32 per cent of gross domestic product.
Fitch said the rating "could be downgraded further if the economy stagnates and broad-based political support for and implementation of budgetary consolidation weakens".
In an interview today, Christopher Pryce, a director at Fitch Ratings in London, said seeking a bailout would be a "last resort' for the Government, as it may be conditional on the country raising its corporation tax rate of 12.5 per cent.
The euro fell 0.3 per cent against the dollar after the rating cut and traded at $1.3821 as of 12.11pm, compared with $1.3839 yesterday.
Irish bonds pared their advance and credit- default swaps linked to Irish government debt rose 9 basis points to 446, according to data provider CMA.
The yield spread between Irish 10-year debt and that of Germany, Europe's benchmark, was at 414 basis points today after widening to a record 454 basis points on September 29th. The government last month cancelled bond auctions in October and November, saying the state is fully funded through the first half of 2011.
Irish consumer confidence plunged the most in more than four years last month as the mounting burden of bailing out Anglo Irish Bank and surging sovereign borrowing costs sparked a "great panic", a report today showed.
"Ireland has experienced a great panic," said Austin Hughes, chief economist at KBC Ireland. There is a "risk that a sense of apocalyptic gloom may trigger a freeze in spending."
Bloomberg