Standard & Poor's, the credit rating agency, downgraded Italy's sovereign debt rating one level to BBB from BBB+ with a negative outlook. "The rating action reflects our view of the effects of further weakening growth on Italy's economic structure and resilience, and its impaired monetary transmission mechanism", said S&P.
The new rating remains 'investment grade, two levels above 'non-investment' or 'junk' status.
The last reduction came in January 2012 when the agency lowered the Italian rating two levels to BBB+ from A also with a negative outlook.
The Italian economy contracted 0.6% in the first quarter and 2.4% on the year. Second quarter figures will be released on August 6th.
The euro fell as low as 1.2754 after the announcement.