S&P raises Czech rating by two notches to AA-
25.08.2011 / 01:50
Standard & Poor's raised the Czech Republic's credit rating by two notches on Wednesday, saying the move reflected a change in methodology as well as fiscal reforms in the central European country.
In a rare action during a spreading debt crisis, S&P raised the Czech Republic's long-term sovereign credit rating to AA-minus from A.
The outlook on the new rating is stable.
The change lifted the crown currency by 0.7 percent against the euro to 24.29, 10-year state bond yields came down by 3 basis points and the stock market rose as much as 0.7 percent before giving back some of its gains.
The action puts the Czech Republic on the level of Estonia and above Italy and Slovakia, which had its A+ rating outlook raised to positive earlier on Wednesday.
"The upgrade was prompted by the application of our revised sovereign criteria, which places a greater weight on central governments' political and economic profile," S&P said.
"Our ratings on the Czech Republic thus reflect its prudently managed and balanced economy."
The agency said the upgrade assumed the government would manage to push through its draft of pension, welfare and fiscal reforms that would put the budget on a sustainable path.
The centre-right administration has made slow progress on the reforms amid much infighting which has kept the cabinet on the brink in the past months.
Finance Minister Miroslav Kalousek said the upgrade was an acknowledgement of Czech reforms.
"It is another positive piece of news on how the credibility of the Czech Republic and the government's effort to aim toward balanced budgets is being evaluated," Kalousek said in a statement.
The cabinet aims to cut the budget deficit below 3 percent by 2013 and to zero in 2016.
"We view the fiscal targets for 2011-2013 as broadly attainable, provided the government does not fragment or waver in its commitment to press ahead with structural expenditure reform," S&P said.
The country's public debt stands at less than half of the European average, at 38.5 percent of gross domestic product, and S&P said it expected it to peak at 45 percent in 2014.