Moody's Investors Service has downgraded Cyprus's government bond ratings by to Baa1 from A2. The outlook is now negative.

The rating agency has also downgraded Cyprus's short-term rating to P-2 from P-1.

Today's rating action concludes the review for possible downgrade, which Moody's initiated on 16 May 2011.The key drivers for today's rating action were: Ongoing concerns about Cyprus's fiscal position, which are amplified by the fiscal and economic consequences of the destruction of the Vasilikos power plant on 11 July 2011.2; The increasingly fractious domestic political climate, which has increased implementation risks to the government's new fiscal plans and the material risk that at least some Cypriot banks will require state support over the medium term as a result of their exposure to Greece.

The negative outlook reflects Moody's view that, in the current environment, the risks to the Baa1 rating are skewed to the downside.

Cyprus's country ceilings for bonds and bank deposits are unaffected by Moody's rating review and remain at Aaa (in line with the euro area's rating).