The challenges associated with the use of agencies’ credit ratings in the context of the COVID-19 crisis

Abstract

A consequence of the outbreak of the pandemic triggered by COVID-19 is the unprecedented global economic recession that has led rating agencies to increase their credit rating downgrades. This process could continue in the coming months if the unfolding of the pandemic results in a significant worsening of the macroeconomic outlook. Although the financial system’s reliance on these ratings has decreased since the global financial crisis, they continue to play a significant role for regulatory purposes and when the investment policies of financial intermediaries and the operational framework of central banks are determined. As a result, these movements could have potentially adverse effects on monetary policy transmission, financial stability and the real economy. The article describes the challenges posed by rating downgrades in these three areas and considers possible measures to mitigate the adverse effects, taking into account the specific characteristics of the current crisis.