Moody΄s downgraded yesterday Greece΄s government bond rating to Caa2 from Caa1 on negative outlook. The short-term rating is unaffected by this rating action and remains at Not Prime (NP). Country’s local and foreign currency bond ceiling was lowered to B3 from Ba3, which reflects the increased probability that Greece may exit the euro area in the event of a sovereign default.

In addition, Moody΄s has also downgraded the local and foreign currency bank deposit ceilings to Caa3 from Caa1 to capture the heightened risk of a deposit freeze, if depositor confidence weakens further. 

Moody΄s government bond rating applies to debt issued on private sector terms only. This rating action concludes the review for downgrade that commenced on 6 February 2015.

The key drivers behind the downgrade are (a) the high uncertainty over whether Greece΄s government will reach an agreement with official creditors in time to meet upcoming repayments on marketable debt, and (b) the significant implementation risks of a follow-up, medium-term financing programme even if an agreement is reached, given the weakened economy and a fragile domestic political environment.

 The negative rating outlook reflects Moody΄s view that the balance of economic, financial and political risks in Greece is slanted to the downside.