THE CREDIT RATING agency Moody’s downgraded Spain’s sovereign credit rating by three notches tonight, days after the government sealed a deal to borrow €100 billion for its troubled banking system.

The agency said that the new loans, the details of which have yet to be finalised, will increase the country’s debt burden at a time when it already has limited access to normal financial lending markets.

“This will further increase the country’s debt burden, which has risen dramatically since the onset of the financial crisis,” Moody’s said, setting the new rating at Baa3 from A3.

This new rating is one notch above  ’junk’ status.

The yield on Spanish 10-year bonds hit 6.8 per cent yesterday as the deal announced at the weekend did little to allay the fears of investors who worry that the bank bailout will not be enough to save Spain.

In issuing news of its downgrade this evening, Moody’s also cited the continued weakness of the country’s economy where unemployment is around 24 per cent and economic growth is stagnant.

“While the details of the support package have yet to be announced, it is clear that the responsibility for supporting Spanish banks rests with the Spanish government,” Moody’s said.

- with reporting from AFP

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