Moody’s downgrades Portugal rating by a notch

Moody’s Investors Service on Tuesday downgraded Portugal’s ratings by a notch from A3 to Baa1 and warned that it expected a further cut given the country’s budgetary, political and economic uncertainties.

Moody’s said its decision was “driven primarily by increased political, budgetary and economic uncertainty, which increase the risk that the government will be unable to achieve (its) ambitious deficit reduction targets” in the period 2011-2014.

The ratings downgrade follows similar action by other top ratings agencies after parliament rejected the government’s latest austerity package earlier this month, forcing its resignation.

The markets increasingly believe that Lisbon will be forced to seek outside help, like fellow eurozone strugglers Greece and Ireland last year, to restore its public finances.

On Monday, the rate of return on Portugal’s benchmark 10-year bonds rose for a 10th straight session to record highs near 8.5 percent, an unsustainable level to have to pay for long-term funding.