Moody's cuts Latvia view to negative

Moody's Investors Service said it changed the outlook on the government of Latvia's A2 foreign- and local-currency debt ratings to negative from stable, along with the view on its A2 country ceiling for foreign currency deposits. The outlook on the Aa1 country ceiling for foreign-currency bonds remains stable.

The change on the government's debt ratings is prompted by the steep fall in economic growth from double-digit annual rates to roughly zero, threatening a decline in the government's financial strength if not halted and contained, Moody's said.

Consumption and investment had been inflated by a substantial increase in domestic credit and a related property boom, both of which are now unwinding, the agency said.

Although it is not Moody's central scenario, Latvia's economy is vulnerable to a sharp reduction in foreign capital inflows, the agency said.

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