New York: Credit ratings agency Moody's Investors Service on Wednesday downgraded Spanish government's credit rating by three notches to Baa3 from A3, which leaves it in investment-grade status but just one notch above junk.
The downgrade comes after European leaders announced a USD 125.64 billion loan to Spain on last Sunday. The loan is meant to help Spain shore up its hobbled banking system.
But according to Moody’s the newly approved eurozone plan to help Spain's banks will increase the country's debt burden.
Moody's, which also said it could lower Spain's rating further, cited the Spanish government's "very limited" access to international debt markets and the weakness of the national economy.
The rating is on review for possible further downgrades, which could come within the next three months, Moody's said.
"The Spanish economy's continued weakness makes the government's weakening financial strength and its increased vulnerability to a sudden stop in funding a much more serious concern than would be the case if there was a reasonable expectation of vigorous economic growth within the next few years," Moody's said in a statement.
Eurozone finance ministers agreed on Saturday to lend Spain up to 100 billion euros (USD 125.74 billion) to shore up its teetering banks, and Madrid said it would specify precisely how much it needs once independent audits are completed in just over a week.
Moody's now puts Spain's rating one notch above junk status. Standard & Poor's rates Spain two notches higher at BBB-plus with a negative outlook. Fitch Ratings cut Spain's rating by three notches on June 7 to BBB - one notch above Moody's - and put a negative outlook on the credit.
With Agency Inputs