Moody’s places Cyprus on review for upgrade

Moody’s Investors Service has placed the long-term government bond ratings and country ceilings for foreign currency bank deposits of Cyprus (A2) on review for possible upgrade. This follows the recommendation issued by the European Commission that Cyprus a should be allowed to adopt the euro on 1 January 2008.

Moody’s views the eventual adoption of the euro by Cyprus as credit positive because it will all but eliminate the risk of a currency crisis and thereby isolate the economy from external financial shocks. The positive rating action is further supported by the strengthening economic fundamentals of Cyprus as in recent years, Cyprus has successfully implemented a programme of fiscal consolidation that narrowed its fiscal deficit and reversed the previous upward trend in its public debt burden.

The outlook on Cyprus Aa1 country ceiling for foreign currency bonds has been changed to positive from stable. However Moody’s officials stated that “this is in preparation for raising these ceilings to Aaa when Cyprus eventually adopts the euro in order to bring Cyprus in line with the Eurozone’s Aaa foreign currency bond ceiling,”. Cyprus‘ country ceiling for local currency bonds and bank deposit remains at Aaa. Cyprus‘ short-term country ceiling for foreign currency bank deposits remains at P-1.