Standard & Poor's has cut Portugal's credit rating by two notches, warning that the country's political crisis heightened the risk that it would be unable to refinance its debt. S&P's downgrade in Portugal's long-term credit rating from A- to BBB is the lowest attributed by any rating agency, bringing Portugal's credit standing closer to junk status.
S&P also warned that it could cut Lisbon's rating by a further notch depending on the outcome of negotiations on the eurozone's bail-out fund.
S&P's decision on Thursday night came hours after Fitch Ratings downgraded Portugal's long-term rating by two notches from A+ to A- because of increased financing risks caused by the fall of the Socialist government.
S&P and Fitch have both placed Portugal's ratings on negative outlook, implying further downgrades could be made in the near future.
Aníbal Cavaco Silva, Portugal's president, is to meet political parties on Friday in an effort to resolve the crisis triggered by the resignation of José Sócrates, the prime minister, after his defeat in a key vote on austerity measures.
Political leaders said the most likely outcome was an early election at the end of May or early June.
Eileen Zhang, an S&P credit analyst, said the political uncertainty caused by the collapse of the government could damage market confidence, pushing up financing costs and increasing the likelihood Portugal would seek an international bail-out. (read more)
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