Moody’s, S&P, Fitch upgrade Cyprus ratings on euro accession

Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have upgraded various deposit and sovereign ratings for Cyprus following the EU’s final decision to allow Cyprus and Malta to adopt the euro on 1 January 2008.

Moody’s upgraded the long-term foreign and local currency government bond ratings and the long-term country ceilings for foreign currency bank deposits of Cyprus to A1 from A2, while the outlook has been changed to ‘positive’.

According to Moody’s the eventual adoption of the euro by Cyprus is viewed as a credit positive event 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.

Cyprus’ long-term country ceiling for foreign currency bonds remains at Aa1 with a positive outlook, while its country ceiling for local currency bonds and bank deposits remain at Aaa. Cyprus‘ short-term country ceiling for foreign currency bonds and bank deposits remain at P-1.

Standard & Poor’s raised its transfer and convertibility (T&C) assessments on the Republics of Cyprus (A/Positive/A-1) to ‘AAA’ from ‘AA’ in line with the ‘AAA’ assessments on sovereigns already in the euro area.

Standard & Poor’s T&C assessment is the rating associated with the probability of a sovereign restricting non-sovereign access to foreign exchange needed for debt service. EMU accession will mean that the foreign currency ratings on non-sovereign borrowers in these countries will no longer be constrained by this risk.

Fitch announced that Cyprus‘s long-term foreign currency Issuer Default Rating (FCIDR) has been upgraded to ‘AA-‘ from ‘A+’. Fitch also revised Cyprus‘ local currency IDR to ‘AA-‘ from ‘AA’.

Fitch has changed the long-term IDR Outlook for Cyprus to ‘stable’ from ‘positive’, and its country ceiling is upgraded to ‘AAA’ from’ AA+’. Additionally, Cyprus’ short-term FCIDR is upgraded to ‘F1+’ from ‘F1’.