S&P follows Fitch with cut to NZ credit rating

Friday 30th September 2011

New Zealand’s foreign-currency debt rating was cut one notch to AA and the nation was stripped of its AAA local currency rating by Standard & Poor’s, which cited high foreign debt and a fiscal position weakened by earthquake costs.

S&P followed Fitch Ratings in lowering New Zealand’s credit ratings in a move that pushed the kiwi dollar down to a six-month low against the greenback.

The move “follows our assessment of the likelihood that New Zealand’s external position will deteriorate further at a time when the country’s fiscal settings have been weakened by earthquake-related spending pressures and fiscal stimulus to support growth,” said Kyran Curry, a sovereign credit analyst at S&P.

The nation’s fiscal and monetary policy flexibility, economic resilience, public policy stability and sound financial sector are “moderated by New Zealand’s very high external imbalances, which are accompanied by high household and agriculture sector debt, dependence on commodity income, and emerging fiscal pressures associated with its aging population,” he said.

The kiwi dollar traded recently at 76.78 U.S. cents, down from above 78 cents in U.S. trading. The bulk of the decline followed Fitch’s move during the U.S. day.

The rating outlook was amended to ‘stable’ from ‘negative’ after the cut, with the strength of New Zealand’s Australian-owned banks and government finances being “important mitigating factors.

”The debt ratings could be cut further if New Zealand's external position continues to deteriorate,” Curry said.

(BusinessDesk)

BusinessDesk.co.nz

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