The SAR Government yesterday strongly rejected the move by Standard & Poor's to downgrade Hong Kong's sovereign credit rating by one notch, saying the global ratings agency had failed to understand its recent decision to intervene in stock and futures markets. The international ratings agency downgraded Hong Kong's long-term foreign currency credit rating to A from A plus and short-term rating to A-1 from A-1 plus, with a negative outlook. The agency pointed out that the intervention - which had, by some estimates, used up about US$15 billion of reserves - changed the mix of financial assets backing the Hong Kong dollar. 'As the bearish sentiment against the Hong Kong dollar shows no signs of abating, further share purchases could follow,' S&P said. 'Once these operations cease, however, the HKMA's [Hong Kong Monetary Authority] portfolio likely will suffer significant losses unless the downward trend in global equity prices is reversed.' Associate director for global ratings development Katrina Tai added: 'The risk is increasing, it doesn't matter what they [the Government] are buying, the risk level of holding equity and futures is higher than if they held cash.' In a strongly worded statement, the Government rejected the agency's claims, saying intervention had been conducted to deter stock and futures market manipulation by speculators who were attacking the local currency. The statement said: 'As a responsible Government we must take all necessary steps to protect the stability and integrity of our currency and financial markets when they are under speculative attack.' The agency further pointed out Hong Kong's reserves backing the local currency, which stood at US$96.5 billion last month, were set to fall with or without the intervention, as the Government would have a budget deficit which could reach up to 3 per cent of the SAR's gross domestic product. The deficit was expected to persist next year as the downturn in economic activity drove domestic prices, nominal incomes and the general price levels lower. The Government said the agency's fiscal deficit estimates were actually above its own, but 'in any case our fiscal deficit this year is unlikely to have significant negative impact on our strong foreign currency positions'. Hongkong Bank and GE Capital Finance saw their ratings - which are level to the SAR's sovereign ratings - cut by the same amount. Commonwealth Bank of Australia treasurer Andrew Fung Hau-chung said the downgrade would not have an immediate impact on Hong Kong companies' funding costs because the corporate lending market was inactive at present. In a separate move, Fitch IBCA lowered the individual ratings of eight key Hong Kong banks, saying their performance tended to mirror that of the economy in which they operated. 'Hong Kong banks have been sound for many years which is why we give them a very good rating,' managing director for Asian financial institutions David Marshall said. 'But they have come down off their peak, which is due to the economy.' Mr Marshall said the downgrade was modest compared with that of banks in most other countries but the outlook was far from positive. 'Our downgrade reveals the fact that we anticipate the performance of Hong Kong banks to be weaker this year and well into next year,' he said. The eight banks included Hongkong Bank, Hang Seng Bank and the Bank of East Asia, Dao Heng, Chekiang First, Kwong On, Dah Sing and Wing Hang.