KIEV, June 12 – Standards & Poor’s, unimpressed with Prime Minister Yulia Tymoshenko’s anti-inflation policy and citing mounting inflation concerns, on Thursday downgraded Ukraine's long-term foreign and local currency credit ratings.

The move, which will probably increase the cost of borrowing by Ukraine ahead of a planned Eurobond issue, is a blow for Tymoshenko, whose controversial depositor bailout plan is thought to have accelerated inflation.

It also reflects skepticism over consumer prices during the next three months as the government has failed to implement a coherent anti-inflation policy that would minimize the risks for the economy.

"The downgrade reflects the failure of authorities to put into place adequate policy measures to counter rising inflation in Ukraine's overheating economy," Frank Gill, credit analyst at Standard & Poor's, said.

The rating agency lowered Ukraine’s sovereign long-term foreign currency rating to B+ from BB- and at the same time cut its long-term local currency rating to BB- from BB.

The move comes as Ukraine’s 12-month inflation has reached 31.1% if measured between May and May 2007, the highest level over the past 10 years and one of the worst such indicators in the world.

Tymoshenko on Thursday reacted angrily to the downgrade, saying that Standard & Poor’s “is not the only credit rating agency in the world.”

“These are rather conditional and subjective things,” Tymoshenko said at a press conference in Zaporizhia. “This is not the only credit rating agency in the world.”

Meanwhile, the downgrade is the second negative ratings action in less than a month after Fitch Ratings, another major agency, has revised Ukraine’s outlook to stable from positive on May 14.

Fitch also cited the growing risks from accelerating inflation and a rising current account deficit.

"This is the second negative ratings action in quick succession and is quite explicitly a comment on the quality of Ukrainian policymaking," said Geoffrey Smith, a strategist at Renaissance Capital investment bank in Kiev.

The government on Wednesday revised Ukraine’s 2008 consumer inflation forecast to 15.3% in 2008, up from 9.6%, a move that will trigger greater budget spending to compensate the rising costs for the poor people.

Some analysts said the greater spending may even trigger a greater inflation later this year.

But Tymoshenko remained optimistic and said that Ukraine may record a monthly deflation in June of 0.7%, suggesting that food prices will actually drop. (tl/ez)