Credit rating agency Moody's cut Greece's credit rating to junk status late yesterday over risks to an EU/IMF bailout package, highlighting persisting doubts over the country's ability to exit a severe debt crisis.
Analysts expect little impact from the widely anticipated multi-notch cut, which pushed the euro down but left other markets unchanged. Greece will not need to return to markets soon and the ECB will still accept its bonds as collateral.
Moody's had repeatedly said it was considering such a steep cut for Greece, which has been hammered by markets and suffered series of rating cuts since it revealed in October that its finances were in a much worse state than previously thought.
Moody's also downgraded the country's short-term issuer rating to not-prime from Prime-1.
After coming within a breath of $1.23, its highest since early June, the euro slipped after Moody's cut Greece's credit rating to about $1.2215 before recovering somewhat.
Other markets were little affected by the move, with CDS unchanged at 740 basis points according to Markit Intraday.
Analysts said they were more concerned by risks of contagion from Greece's debt crisis, which has sent shockwaves through markets worldwide, to other indebted euro zone countries such as Spain and Portugal.
Greek government bonds will remain eligible as collateral for loans despite Moody's move after the European Central Bank decided last month to suspend its minimum threshold for Greek debt.
The EU/IMF aid package assumes that Greece will not need to borrow on markets before 2012.
Moody's said the 110-billion euro ($134 billion) "pain for gain" package agreed with the EU and the IMF last month was not enough to prevent the ratings cut.
The firm said Greece's credit ratings will now depend on its future economic growth and it still saw a low probability of Greece restructuring its debt.
Fitch has no immediate plans to follow suit and cut Greece's debt to junk, a senior analyst at the ratings firm said.
Fitch currently rates Greece at BBB-minus, the lowest investment-grade level, with a negative outlook.
Standard & Poor's cut Greece's debt rating to junk status in April.
Greece said Moody's cut was not justified, considering progress in shoring up its public finances.
REUTERS