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Portugal may have dodged a bullet over credit rating but 'pressure remains'

Portuguese bond yields slipped to lows not seen since the start of September on Monday as investors breathed a sigh of relief that the country's credit rating had not been slashed to junk status.

Canada's Dominion Bond Rating Service cited Portugal's budget deficit reduction as a key reason to maintaining a BBB investment grade late on Friday.


Crisis averted for the moment

Richard Baker | Getty Images

As one of Europe's weakest economies, Portugal will have undoubtedly been thankful for this decision as this means the nation's debt can still be purchased by the European Central Bank's (ECB) bond-buying program.

Investors had been prepared for a mass sell-off in the event of a downgrade and Portugal's 10-year bond yield tumbled down 9 basis points to 3.11 percent on Monday's European trading open as a potential crisis was averted.

The ECB has a set limit on how many bonds it can purchase from one particular country and though some investors have claimed the central bank could change its ruling, an overhaul of the purchase limit does not appear to be imminent.

ECB already backtracking

Ricardo Amaro, economist with Oxford economics told CNBC that the ECB's is already backtracking over its bond-buying rule though does not believe they will amend it just yet.

He went onto say in a phone interview, "The Portuguese government has been keeping to its targets so far but party pressure still remains.

"We forecast that Portugal's GDP (gross domestic product) will grow 1.2 percent in 2017, slightly better than the 1 percent we have in 2016. But as our forecast for the euro zone as a whole in 2017 is 1.5 percent, Portugal is expected to continue lagging behind other regional peers."

Portugal's central bank declined to comment when contacted by CNBC.