The Italian government has shown that it is still able to borrow money at affordable rates of interest, despite getting a further thumbs down from the Moody’s ratings agency.
Just hours after a further downgrade from Moody’s, Rome was able to sell 5.25 billion euros worth of government bonds.
Friday’s cut by the US agency to Baa2, to just two notches above junk status, was criticised by the Italian Industry Minister Corrado Passera. He said: “The Moody’s judgement is altogether unjustified and even misleading because it does not take into account all the efforts that our country is making.”
International demand for Rome’s bonds is low but Italian banks are buying them.
The bulk of those sold on Friday are due to mature in three years time. The interest rate that Italy had to offer on those was down at 3.6 percent in May, it hit 5.3 percent in June and has now slipped down to 4.65 percent.
Moody’s said it was lowering Italy’s sovereign debt rating because of doubts over the country’s long-term resolve to push through much-needed reforms – with the economy forecast to shrink two percent this year – and fears about Spain’s problems spreading to Italy.
The agency praised Prime Minister Mario Monti’s commitment to fiscal reforms and structural consolidation. But warned it could again cut the country’s marks if the next Italian government failed to continue along this path.
“The negative outlook reflects our view that risks to implementing these reforms remain substantial. Adding to them is the deteriorating macroeconomic environment, which increases austerity and reform fatigue among the population,” it said.
“The political climate, particularly as the spring 2013 elections draw near, is also a source of implementation risk.”
The European Commission, which has so far mostly refrained from commenting on rating actions on individual eurozone countries, queried the timing of Moody’s downgrade while backing the steps Italy has taken address its structural weaknesses.
“I do think one can legitimately and seriously question the timing of it, whether the timing was appropriate,” Commission spokesman Simon O’Connor told a regular briefing.