NEW YORK (ForexNewsNow) – Credit rating agency Standard & Poor’s raised the Czech Republic’s debt rating by two notches on Wednesday to AA- level. As expected, Czech economic and financial markets reacted positively to the news.
Standard & Poor’s underlined that the change was influenced by the evolution of the rating criteria, which increasingly focuses more on the political and economic profile of a given country. The credit rating agency said the country’s low level of foreign indebtedness, its stable banking sector with marginal lending in foreign currencies and the largely independence of the central bank were all contributing factors to the decision. S&P’s also said the upgrade was dependent on the expectations that the proposed reform of the pension system will be fully implemented.
Following this announce, the Czech currency (koruna) rapidly appreciated, while the Czech bond market remained stable. The Czech Ministry of Finance is expected to reap long term benefits from the rating upgrade since it will allow the country to issue much cheaper sovereign bonds in the next few months.
It should be noted that the Czech debt rating is now one notch higher than Italy’s rating, giving further evidence of the rising power of eastern Europe as Western Europe continues to be plagued by economic turmoil.