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Ireland's debt rating downgraded again

IRELAND'S debt rating was lowered yesterday by Standard & Poor's for the second time this year amid mounting worries over the cost of the government's bailout of the banking system.

The credit ratings agency said it had lowered its long-term sovereign credit rating to "AA" from "AA+" and that the country's outlook remains negative.

Though the new rating is still relatively strong, it could mean the country may have to pay higher interest rates to borrow money on bond markets as investors may demand more insurance on Irish government bonds in exchange for risking their money.

"We have lowered the long-term rating on Ireland because we believe that the fiscal costs to the government of supporting the Irish banking system will be significantly higher than what we had expected when we last lowered the rating in March 2009 and, consequently, that the net general government debt burden will also be significantly higher over the medium term," Standard & Poor's credit analyst David Beers said.

S&P's downgrade comes after the nationalized Anglo Irish Bank reported a 3.8 billion euro (US$5.27 billion) half-year loss and the government formed a new "bad bank" - the National Assets Management Agency - to buy an estimated 90 billion euros in defaulting loans from Irish banks.

S&P said the rating could be lowered again if asset quality in the Irish banking system deteriorates at a faster pace than expected and if, as a result of its support for the sector or due to an even more pronounced downturn in economic growth, the government's fiscal performance weakens further than we currently assume.

Rival credit rating agencies Moody's and Fitch have also downgraded the country's debt in recent months amid concerns that Ireland's banks have been hit hard by a crash in the housing market and the recession.


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