Rating risk for Cyprus

Moody’s Investors Service warned Cyprus yesterday about a possible credit rating downgrade in the next three months, but Nicosia responded that it has covered its financial needs for the next few months. Moody’s said it had placed Cyprus bond ratings on review for a possible downgrade by more than one notch from its current Aa3 level. The international rating agency attributed its decision to concerns about the exposure of all main Cypriot banks to Greece and to recent problems in the island’s economy owing to structural rigidities. «The severe impact of the financial crisis on Cyprus caused a deterioration in government finances that may prove very difficult to reverse. While it is true that Cyprus’s debt level is currently much lower than that of many other eurozone countries, Moody’s notes that it has risen very quickly and expects it to continue rising in the coming years,» Moody’s senior analyst Sarah Carlson said in an e-mailed statement yesterday. The Cypriot Finance Ministry responded promptly, stating that the country has provisionally covered its medium-term financing needs with very competitive interest rates and will not need to resort to international markets anytime soon, especially given the current tough conditions.