March 16, 2011

Portugal rating slashed by 2 notches to A3

Moody's said that Portugal faces 'subdued growth prospects and productivity gains' over the next few years until its structural reforms kick in
Ratings agency Moody's has concluded a review of Europe's weaker economies by cutting Portugal's credit rating by two notches and warning that its growth prospects are poor.
The downgrade, from A1 to A3, leaves Portugal with only the seventh highest credit rating, just four notches above Junk. It brings Moody's into line with the other ratings agencies, and piles more pressures on Portugal ahead of its next debt auction.It is scheduled to auction up to €1bn (£869m) of twelve-month debt on Wednesday morning.

It also maintained a negative outlook on Portugal's sovereign debt, saying there is more chance of a further downgrade than an upgrade in the next two years.

Interest rates on Portugal's debt remain at levels that are widely seen as unsustainable. The yield on five-year Portuguese bonds rose to almost 7.5% on Wednesday morning.

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