Moody's Investors Service has today downgraded Cyprus's government bond ratings by two notches to A2 from Aa3, reflecting its view of the country's weakening medium-term credit fundamentals. At A2, the rating outlook is stable.

The key drivers for today's rating action were concerns that the deterioration in the Cypriot government's fiscal metrics, relative to levels recorded prior to the financial crisis, is largely structural; The banking sector's exposures to macroeconomic stress in Greece; and concerns about the country's competitiveness.

"The stable outlook reflects Moody's view that the A2 rating captures the increased risks that Cyprus faces, and that, at present, upside and downside risks are evenly balanced. Cyprus's country ceilings for bonds and bank deposits are unaffected by Moody's ratings review and remain at Aaa (in line with the Eurozone's rating)," the agency said.