Moody's Investor Services put Cyprus on notice Thursday that it may have its credit rating downgraded sometime in the next three months, partly because of the island's exposure to bailed-out Greece.
Moody's said Cyprus could have its Aa3 rating cut by more than one notch but indicated that it would likely remain in the investment-grade A category.
Moody's said its decision to review Cyprus' rating was prompted by concerns of a recent deterioration in the country's public finances, competitiveness issues as well as the banking sector's exposure to Greece's economy.
"The severe impact of the financial crisis on Cyprus caused a deterioration in government finances that may prove very difficult to reverse," said Sarah Carlson, the Moody's main Cyprus analyst.
"While it is true that Cyprus's debt level is currently much lower than that of many other eurozone countries, Moody's notes that it has risen very quickly and expect it to continue rising in the coming years," Carlson added.
The review is usually completed within 90 days.
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