Moody's said on Thursday political turmoil stemming from the announced early departure of Prime Minister Mario Monti would have limited impact on Italy's sovereign credit rating.
It added that it expected the next government to continue on a reform path.
Continue Reading Below
The agency, which has up until now taken a harsher stance on Italy than ratings peers Fitch and Standard & Poor's, said it expected a new government to stick to the main elements of the 2013 budget law, which parliament is to pass before year-end.
Monti, an unelected caretaker called in a year ago to help Italy survive a deep financial crisis, decided to resign after losing support from Silvio Berlusconi's center-right party last week. He will quit as soon as the budget law is approved.
General elections are now expected in February, a few weeks earlier than what was originally planned.
The agency rated as low the chances of a Berlusconi return as prime minister, a prospect that sparked some market concern earlier this week. Berlusconi's party is lagging the center-left Democratic Party (PD) by around 15 percentage points in polls.
Meanwhile, a victory of the PD led by Pierluigi Bersani would likely result in a pro-reform government, it said.
"We expect he will maintain a reform-oriented policy agenda," Moody's said in a research note. Moody's rates Italy's sovereign debt Baa2, two notches above junk, with a negative outlook.
The agency said a return of Monti to government would strengthen Italy's commitment to a balanced budget and reforms aimed at boosting competitiveness.
"The possibility remains that Mr. Monti could return to the prime minister position, either as a candidate in association with the centrist movement or ... if parliament instead opts for a second term technocrat administration. We would expect such an outcome to also be conducive to continuing reform," it said
Italian borrowing costs eased on Thursday, reversing part of the rise seen after Monti announced his intention to resign.
The premium Italian 10-year BTPs pay over safer German equivalent bonds tightened to around 325 basis points earlier on Thursday, back to the level seen before Monti's early exit announcement.
Italy is expected to find buyers for 3.5 billion euros of a new BTP bond maturing in December 2015 that is putting up for sale at 1000 GMT (5 a.m. ET) on Thursday, along with a maximum 750 million euros of a 15-year bond which it no longer issues on a regular basis.
(Reporting By Lisa Jucca. Editing by Jeremy Gaunt.)