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Moody’s slashed Spain’s credit rating to just above junk status and placed it on review for a possible further downgrade.
Moody’s said today it had slashed Spain’s credit rating by three notches to just above junk status and placed it on review for a possible further downgrade after the country agreed to borrow 100 billion euros ($125 billion) to shore up its debt-stricken banking sector, Reuters reported.
The ratings action is yet another blow to crisis-hit Spain, which has seen its borrowing costs soar to euro-era highs in recent days as the country sinks deeper into recession and unemployment remains at record-high levels.
Madrid’s decision to borrow up to 100 billion euros from the European Financial Stability Facility or the European Stability Mechanism would “materially worsen the government’s debt position,” Moody’s said in a statement.
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Moody’s also pointed to the Spanish government’s “very limited” access to financial markets and continued weakness in the economy, which is the fourth largest in the euro zone, Agence France-Presse reported, citing the statement.
The ratings agency forecast Spain’s public debt ratio to rise to around 90 percent of gross domestic product this year and continue rising until 2015, according to the Wall Street Journal.
Spain and its beleaguered banking sector have been hit by a series of downgrades in recent weeks.
On Tuesday, Fitch chopped the credit ratings of 18 domestic banks after downgrading the country’s two largest lenders and its sovereign credit rating.
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Last month, Moody’s also cut the debt ratings of 16 Spanish lenders.