Morgan Stanley cuts Israel sovereign credit to "dislike stance", Moody's warns of "significant risk”
There is "a significant risk that political and social tensions over the judicial reform will continue, with negative consequences for Israel's economy and security situation," Moody’s wrote
Morgan Stanley cut Israel sovereign credit to a "dislike stance" on Tuesday after the Knesset passed the first in a series of laws sought by Prime Minister Benjamin Netanyahu to limit the power of the Supreme Court.
"We see increased uncertainty about the economic outlook in the coming months and risks becoming skewed to our adverse scenario," Morgan Stanley's analysts said in a research note.
"Markets are now likely to extrapolate the future policy path and we move Israel sovereign credit to a 'dislike stance'."
Later in the day, Moody's warned that there is "a significant risk that political and social tensions over the \[judicial reform\] will continue, with negative consequences for Israel's economy and security situation."
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"The wide-ranging nature of the government's proposals could materially weaken the judiciary's independence and disrupt effective checks and balances between the various branches of government, which are important aspects of strong institutions," the credit rating agency wrote in its announcement that was made outside of its standard schedule for rating updates. "The executive and legislative institutions have become less predictable and more willing to create significant risks to economic and social stability."
In April, Moody’s affirmed Israel's sovereign credit rating at "A1", while revising its outlook to stable from positive.
Tuesday’s announcements came one day after the Israeli Knesset passed the law abolishing the reasonableness standard in court rulings. The opposition boycotted the final vote after the country's president failed to negotiate a compromise between the sides.
Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich dismissed Moody's announcement, stating: "This is a momentary reaction, when the dust settles it will become clear that Israel's economy is very strong."
