Likely Effect of Moody's Announcement

Treasurer and Finance Minister Bill Birch today emphasised that the change in Moody 's credit rating related only to future New Zealand sovereign foreign currency borrowings. Domestic debt was in no way affected.

Commenting on the likely effect of Moody's announcement, he said:

'A number of factors influence New Zealand borrowing costs in international markets. The major determinants are the economic fundamentals in countries whose currencies are used to finance demand and supply of capital.

'The change in relative borrowing cost which results from a single-category rating change is likely, for the following reasons, to be negligible:

'Firstly, this rating change has been anticipated for some time by financial markets, who adjust continuously to information and make their own on-going assessments of the credit standing of borrowers.

'Secondly, New Zealand has eliminated net public foreign-currency debt, Foreign-currency borrowing now is typically undertaken only to roll over the maturing debt that funds our foreign-currency reserves.

'Finally, the range of borrowing costs which separates Aaa sovereigns and official institutions from those rated Aa is small. The difference between Aaa credit and Aa1 is less than 0.1% for US dollar borrowing,' Mr Birch said.