Moody's upgrades NZ's foreign currency rating to AAA

Moody's lowered New Zealand's rating in September 1998 during the Asian financial crisis. It cited New Zealand's deteriorating current account and worsening economic conditions at the time.

Fellow international agency Standard and Poor's put New Zealand on negative creditwatch at that time but never downgraded. It affirmed New Zealand's rating last week at double-A-plus with a stable outlook.

Australia's credit rating was similarly upgraded by Moody's today while Iceland was upgraded two notches to the same level.

Moody's said it believed that governments in advanced industrialised countries such as those upgraded today had become increasingly less likely to impose debt moratoria as a policy tool.

"They are also significantly less likely -- as evidenced by their behaviour throughout the 1990s --- to `socialise' (that is, to take on all foreign currency risk of the public and private sector) than was believed in the past."

It said that in addition, since these three countries operate under flexible foreign exchange regimes, Moody's said it was also less likely that they would experience the kind of foreign exchange crisis that less flexible rate regimes might produce.

Finance Minister Michael Cullen welcomed the announcement of the rating restoration "to the highest possible credit rating for foreign currency debt".

The decision raises New Zealand two notches from Aa2 to Aaa, and returns us to the rating we held in 1983, he said.

"This places New Zealand up with top world economies like the European Union and the United States and is a clear sign of international confidence in the current government's fiscal and economic management," said Dr Cullen.

The upgrade was not linked to any one particular event, said Dr Cullen who recently visited Moody's.

Rather, it reflected the agency's belief that, in the event of an external payments crisis, New Zealand was unlikely to impose a moratorium on debt repayment to ration scarce foreign currency assets -- thereby forcing companies to default on their foreign debt payments.

Last year, Moody's changed its rating methodology, a consequence of which allowed private companies to have ratings above the sovereign rating of the countries in which they are domiciled.

This change reflected Moody's assessment that most governments have come to recognise the disruption to the economy that could result if a debt moratorium were applied to providers of critical services such as these.

"Today's upgrades of the ceilings themselves reflect Moody's assessment that the countries involved are extremely unlikely to pursue a moratorium policy at all," Moody's said.

Foreign currency dealers were initially uncertain about the exact significance of the upgrade but the New Zealand dollar zoomed 35 basis points higher to US48.35c in busy action.

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