LISBON: Credit rating agency Moody's cut Portugal's sovereign debt by one notch on Tuesday, saying it believed an incoming government would need to seek financing support from the European Union as a matter of urgency.
Moody's cut its rating on Portugal's long-term government bonds to BAA1 from A3 and said the country's debt was still under negative review, with further downgrades dependent on Lisbon's ability to secure medium-term funding.
"Moody's believes that the government's current cost of funding is nearing a level that is unsustainable, even in the short-term," the ratings agency said on a statement.
The euro eased to session lows of around $1.4172 after the downgrade.
Financial markets are convinced Lisbon will have to follow Greece and Ireland in asking the European Union and International Monetary Fund for a bailout.
However, caretaker Portuguese Prime Minister Jose Socrates, who resigned last month after parliament rejected his latest spending cuts, has made it a point of honour not to accept EU/IMF help.
Portugal's president dissolved parliament last week and set June 5 as the date for the next polls, meaning the country is effectively in limbo for two more months.
While Portugal can probably go on funding itself for the next eight weeks it has to refinance 4.3 billion euros ($6.1 billion) of debt in April and 4.9 billion in June the cost of doing so is likely to go on being punitively high.
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