Moody’s has upgraded Ireland’s credit rating on the basis that growth there has been better than expected.
They put it up by one notch to A3 from Baa1 and with a positive outlook.
That means Europe’s fastest-growing economy has now won back its ‘A’ rating from all the major ratings agencies.
As a result Dublin’s long-term government borrowing costs fell given that more investors are able to buy their bonds.
“The upgrade by Moody’s expands the range of potential buyers of Irish bonds. Some investors, particularly in Asia require a minimum A grade from all of the three big agencies,” Cantor Fitzgerald strategist Ryan McGrath said.
Moody’s was the only agency to cut Irish debt to the junk level in 2011, months after Ireland entered a three-year international bailout.
Growth and political agreement
Ireland’s economy grew almost eight percent last year and the European Commission is forecasting it will expand by 4.9 percent this year, more than double the pace of the eurozone.
The upgrade came one week after Enda Kenny was re-elected prime minister ending ten weeks of political deadlock which was another factor for Moody’s.
In a statement the ratings agency said: “The recent political agreement between the two largest parties in parliament and the recent election of a minority government led by Fine Gael, which has established a strong track record of fiscal management over the past several years, give comfort that the budget deficit will be reduced further in coming year.”
Newly formed Government’s approach validated by Moody’s rating decision to upgrade Ireland to A3 with a + outlook https://t.co/Pu32wsmUvD— Dept of Finance IRL (@IRLDeptFinance) May 14, 2016
However commentators pointed out the minority government could be short-lived given Ireland’s fractured parliament.
In addition a vote on EU membership in one of Ireland’s largest trading partners Britain next month also poses a significant risk.
However Moody’s doesn’t seem worried by that, saying in its statement: “While a UK exit from the EU would have negative repercussions on Ireland, given the close economic ties, Moody’s considers that this risk would be manageable for the Irish economy.”