Credit rating retained

New Zealand's credit rating will not be downgraded.

Ratings agency Standard & Poor’s, which had threatened to lower the rating, has just advised that it won't be doing that. In addition it has revised its outlook to "stable" from "negative".

The actions in today's Government Budget were obviously enough to stay S&P's hand. The main intent of the Budget was showing a disciplined approach to the management of New Zealand's debt position so that the ratings agencies would not downgrade us.

S&P said it had affirmed the Government ratings at ‘AA+/A-1+’.

"The ratings action reflects the sound outlook for the sovereign’s fiscal position, as articulated in the government’s budget, released today," S&P said.

The Sovereign debt rating is important for the country as it has an impact both on the Government's ability to borrow money and on the cost of that money. The poorer the credit rating the more lenders charge.

The New Zealand dollar, which had drifted down after the Budget announcement, strongly rebounded on news the credit rating had been retained. A short time ago, the Kiwi dollar was worth 61.7 cents against the American currency, up from 61.3c before the S&P announcement.

"The change in the outlook on the foreign currency rating reflects our view that the measures announced in today's budget will support stabilisation in the government's fiscal position over the medium term," said credit analyst Kyran Curry, of Standard & Poor’s Sovereign Ratings team.

Earlier the other big rating agency Moody's Investors Service maintained a stable outlook on New Zealand's ratings.

While the budget indicated continuing pressure on public finances for several years to come, because the country's finances were starting from a relatively strong position, the Aaa rating was not immediately affected by the projected debt path, Moody's said.

Measures announced in the budget, including decisions not to go forward with tax cuts in the next two fiscal years and not to contribute to the Superfund for an indefinite period, would limit the deterioration in the budget balance in the near term.

Standard & Poor’s Ratings Services said today that it has revised the outlook on the ratings for New Zealand, and affirmed the ratings at ‘AA+/A-1+’. The ratings action reflects the sound outlook for the sovereign’s fiscal position, as articulated in the government’s budget, released today. S&P said the successful delivery of the strategy outlined in today's Budget was "consistent" with maintaining the current rating.

"The main risk to the ratings would be a significant weakening in the credit quality of New Zealand's banking sector, which is largely owned by the Australian banks," Curry said.

"However, we continue to expect the banks' capitalisation to remain adequately able to absorb the likely increase in credit losses given the weak economic environment and, funding and capital support from the parent banks, if required."

S&P also affirmed its 'AA+/A-1+' foreign currency ratings, but revised the outlook on the long-term ratings to stable from negative, on the following government-related entities: Housing New Zealand Corp., Housing New Zealand Ltd., New Plymouth District Council, Counties Manukau District Health Board, Auckland District Health Board, and Christchurch City Council and its wholly owned subsidiary Christchurch City Holdings Ltd. The AAA/Stable/A-1+ local currency ratings on these entities were unchanged.