Moody’s says unclear whether Israel’s ceasefire with Hezbollah sustainably cuts risks

LONDON (Reuters) – It is too early to say whether Israel’s ceasefire deal with Hezbollah in Lebanon has “significantly and sustainably” reduced the risk that led Moody’s (NYSE:) to downgrade Israel’s sovereign credit rating, the agency said on Thursday.

Israel agreed earlier this week to a ceasefire deal with Iran-backed Hezbollah that has prompted relief that tensions appear to be cooling more than a year after the war in Gaza began.

“It is too early to say whether these risks will be significantly and sustainably reduced,” Moody’s said.

The agency downgraded Israel’s credit rating to Baa1, from A2, in September.

Earlier on Thursday, ratings agency Fitch said the ceasefire deal could limit strains on Israel’s credit profile.

Israel’s bonds, which have been under pressure during the war, gained after the ceasefire deal took effect on Wednesday, while Lebanon’s deeply distressed bonds also got a boost.

Moody’s maintained a negative outlook on Israel’s rating after its September downgrade, which came amid escalation of the conflict in the region, and warned that because of the uncertainties over the country’s security and longer-term economic growth prospects, more downgrades were possible.

On Thursday, it also said that while geopolitical risks “appear to have partially diminished”, domestic political risks remained.

“In our view, the Israeli government is pursuing policies that add to already high social tensions in the country,” it said, citing disputed judicial reforms and attempts to permanently exempt the ultra-orthodox from military service.