Moody’s Downgrades Israel’s Credit Rating
(Reuters) – Moody’s (NYSE:MCO) on Friday downgraded Israel’s credit rating two notches to “Baa1” from “A2” and maintained a negative outlook amid the escalation of conflict in the region with the Lebanese armed group Hezbollah.
Reasons for Downgrade
The primary reason for the downgrade is Moody’s view that geopolitical risk has significantly intensified, now at very high levels, leading to material negative consequences for Israel’s creditworthiness both in the near and long term.
Although the downgrade keeps Israel’s rating three notches into investment grade, Moody’s cautioned that uncertainties regarding the country’s security and longer-term economic growth prospects are now much higher than what is typical at the Baa rating level. A fall below this level would result in Israel losing its investment grade rating.
Potential Further Downgrades
Moody’s indicated that further downgrades are likely, potentially by multiple notches, if current heightened tensions with Hezbollah escalate into a full-scale conflict.
Typically, a loss of investment grade rating results in a spike in servicing debt costs and may compel some investors to offload their holdings, further pressuring the market price of Israel’s bonds.
Fitch, another rating agency, downgraded Israel’s credit rating to “A” from “A-plus” last month and also maintained a negative outlook.
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