LONDON (Reuters) - Canadian ratings agency DBRS said it would consider recent political developments before its review of Portugal’s credit rating this week, acknowledging that a downgrade could see the country kicked out of the ECB’s bond buying programme.
In order to qualify for quantitative easing (QE), the ECB demands that either Moody’s, Standard & Poor’s, Fitch or DBRS rate a country at investment grade, or that a country is compliant with a bailout.
DBRS is the only one of the four to rank Portugal as investment grade, with a BBB (low) rating and a stable trend. A one-notch downgrade at its scheduled ratings review on Friday would send Portuguese debt into junk territory.
“We tend to look at long-term issues but we will also discuss the recent political developments and the increased uncertainty surrounding that,” DBRS’s lead analyst for Portugal, Adriana Alvarado, told Reuters on Tuesday.
Portugal’s leftist lawmakers ousted the centre-right government on Tuesday, opening the way for a possible alternative administration led by the Socialists.
Some economists have voiced concerns that a leftist government may row back on reforms and spending cuts introduced during Portugal’s debt crisis.
“We would be concerned if the agreement between these parties undermined the commitment to fiscal adjustment and overall economic prudence,” Alvarado said.
“We shouldn’t be influenced by that decision (on QE eligibility), in the end that is a decision that is taken by the ECB if they want to include Portuguese bonds in the programme or not.”
Editing by Louise Ireland