The European Central Bank stated today that government bonds from Cyprus are ineligible as collateral as the country's credit rating was slashed by Fitch Ratings and Standard & Poor's.

The temporary ineligibility of the Cyprean bonds dampened the atmosphere of the local market. According to the Governing Council of the European Central Bank, it has "has decided to temporarily suspend the eligibility of marketable debt instruments issued or fully guaranteed by the Republic of Cyprus for use as collateral in Euro system monetary policy operations."

Fitch Ratings lowered the Mediterranean island nation's credit rating to restricted default from a previous CCC yesterday after the country finished a government bond exchange for long term securities. Another index, Standard and Poor's, diminished Cyprus' sovereign credit rating down to selective default.

The decision to render the government bonds from Cyprus ineligible as collateral "takes into account the changes in the credit rating of the Republic of Cyprus as a result of the transactions announced by the Ministry of Finance of the Republic of Cyprus."