Moody's cuts Estonia, Latvia view to stable

Moody's Investors Service said it changed the outlooks to stable from positive on Estonia's and Latvia's long-term foreign- and local-currency debt.

The changes were prompted by worsening macroeconomic imbalances that have eroded the upside potential for the sovereign ratings of both countries in the foreseeable future, the agency said. Persistently high inflation also makes their accession to the European Monetary Union unlikely within the next several years, Moody's added.

Moody's local- and foreign-currency government bond rating for Estonia is currently A1. The local- and foreign-currency government bond rating for Latvia is A2. The countries' prime-1 short-term foreign- and local-currency ratings were unaffected by the change in outlooks.

Moody's also changed the outlook on Estonia's and Latvia's Aa1 foreign-currency country ceiling for long-term bonds to stable from positive. Their prime-1 short-term foreign-currency country ceilings were unaffected by this outlook change. Both Estonia and Latvia have an Aaa local-currency bond ceiling.

Moody's changed the outlook on Estonia's A1/prime-1 foreign-currency bank deposit ceiling to stable from positive. The outlook on Latvia's A2/prime-1 foreign-currency bank deposit ceiling also has been changed to stable from positive.

Latvia's economy is expanding at a very rapid rate, while economic growth in Estonia has recently slowed but remains high, the agency said. Very fast growth has brought many benefits, but the risk is that a slowdown could be somewhat sharper than previously thought, Moody's said.

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