Standard & Poor’s rating agency on Monday downgraded Russia’s credit grade by one notch to junk status, citing a weakened economic outlook.
The agency dropped the rating to “BB+” from “BBB-” as it sees the country’s financial buffers at risk amid a slide in the country’s currency and weakening revenue from oil exports.
“In our view, the Russian Federation’s monetary policy flexibility has weakened, as have its economic growth prospects,” it said.
Photo: Reuters
Russia’s economy has been hit hard by the double impact of weaker prices for its energy exports as well as Western sanctions.
The Russian currency tumbled on the downgrade, dropping some 7 percent to about 68.5 rubles to the US dollar.
Standard & Poor’s said that Russia’s financial system is weakening, limiting room to maneuver for Russia’s Central Bank.
It said the bank “faces increasingly difficult monetary policy decisions,” while also trying to preserve incentives for growth
The Russian economy is expected to contract by 4 to 5 percent this year for the first time since Russian President Vladimir Putin took the helm in 2000.
Capital outflows, which averaged US$57 billion annually between 2009 and 2013, soared to US$152 billion last year.
“Stresses could mount for Russian corporations and banks that have foreign currency debt service requirements without a concomitant foreign currency revenue stream,” the ratings agency said.
Russian Minister of Finance Anton Siluanov sought to play down the anticipated move, saying it reflected the rating agency’s “excessive pessimism.”
He emphasized the Russian economy’s strong fundamentals, such as a high level of hard currency reserves, trade surplus and low level of state debt.
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