Moody’s Investors Service downgraded Italy’s sovereign debt rating by one notch to Baa3 late on Friday, leaving it one rung above sub-investment grade, or junk. They cited Italy’s fiscal deterioration and the government’s decision to target higher budget deficits in the coming years. The ratings firm also added that the government’s policy proposals did not offer a set of reforms that could lift Italy from its anemic economic growth. At the same time, Moody’s gave Italy a stable outlook, meaning it was unlikely to cut the country’s debt rating again anytime soon. Investors are wary of further downgrades as falling into a ‘junk’ rating would have forced more conservative investors to dump their holdings of Italian government paper.
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