Ireland joins Portugal and Greece as the third euro-area nation to have its rating reduced to below investment grade.
Moody’s Investors Service said its decision to cut Ireland to Ba1 from Baa3 was based on the “growing possibility” it would need a second bail-out before it can return to capital markets.
Ireland was forced to seek an €85bn rescue in November last year, as the European banking crisis overwhelmed the government’s austerity efforts.
The outlook remains “negative,” Moody’s said in a statement yesterday, suggesting further downgrades are possible.
According to reports, Ireland’s government said Moody’s decision to downgrade was “disappointing” because it had so far met the targets under its bail-out programme.
The European Commission also issued a statement denouncing the decision.
The development followed a day when fears over the future of the eurozone and the euro single currency spread across the continent, rocking world markets.
UK Chancellor George Osborne called for decisive action to arrest the deterioration in the euro area amid growing signs that Greece is heading for default.
He said Britain was not immune from the turmoil, which could do “real damage” to the world economy.
Shares tumbled further on Tuesday, with the FTSE 100 index shedding more than 60 points to 5,868.96, amid continued fears that the sovereign debt contagion is spreading from Greece, Ireland and Portugal to Italy and Spain.
The euro touched a four-month low of $1.3836 against the dollar and 88.04p against sterling.
