The threat of Moody's downgrading Hong Kong's foreign currency ratings eased yesterday after the agency confirmed the SAR's ratings and assigned a 'stable' outlook. Moody's had placed Hong Kong's foreign currency ratings on review for possible downgrade on September 3. Despite being in the middle of a recession, Hong Kong's foreign currency long-term ceilings for bonds, notes and bank deposits were confirmed at A3. Moody's also confirmed its prime-2 short-term ceilings. The A3/prime-2 ratings of the Mass Transit Railway Corp and the Kowloon-Canton Railway Corp were also maintained. 'The Special Administrative Region's performance during the Asian crisis has demonstrated the strength of both its institutional structure and its financial position,' Moody's said yesterday. The rating agency said the linked exchange rate had continued to operate during a period of considerable stress. It noted that although there had been a deterioration in the budgetary position of the Government, the budget this year had been financed entirely from fiscal reserves. According to Moody's, the reserves remained substantial and would remain so even if there was another deficit next year. Paul Tang Sai-on, senior economist at Bank of East Asia, said: 'We are in a healthy adjustment period.' Nomura International economist Kevin Chan said leading Hong Kong corporations had historically enjoyed the same levels of high credit ratings as the Government, but there would be a divergence next year. 'The Government is facing up to two years' budget deficit that it is able to cope with, but there is a lingering concern over the asset quality of the banks and corporations,' Mr Chan said. In October, Financial Secretary Donald Tsang Yam-kuen criticised rating agencies, calling on them to review their assessments of the SAR. Mr Tsang said: 'I presented the facts about Hong Kong's economy and also explained in detail the political and economic links between Hong Kong and the mainland. 'We have a good story to tell . . . It is time to look at Hong Kong afresh.' Moody's and Standard & Poor's responded by saying that their ratings of Hong Kong were fair and accurate. Moody's yesterday reiterated that its ratings of Hong Kong were closely linked to those of the mainland although they did not necessarily always need to be the same. The agency noted its prime-2 short-term ceilings for Hong Kong were above the corresponding ceilings for the mainland, as is the A3 foreign currency rating for bank deposits.