Ratings agency Moody's lowered Egypt's sovereign rating by one notch to B3 from B2 on Tuesday, citing the country's reduced external buffers and shock absorption capacity.

The agency changed its outlook for Egypt to stable from negative.

"Moody's does not expect Egypt's liquidity and external positions to rebound quickly", the agency said.

Egypt has continued to face a foreign currency shortage despite allowing the Egyptian pound to depreciate sharply in recent months.

The country's headline inflation is expected to accelerate further in January after surging to its highest in five years in December, according to a Reuters poll.

The agency also lowered Egypt's local-currency ceilings to Ba3 from Ba2.

(Reporting by Vansh Agarwal in Bengaluru; Editing by Krishna Chandra Eluri)