News / Business

S&P downgrades Russia’s rating to ‘junk’

Monday, 26 January 2015 7:20 PM [ Last Update: Monday, 26 January 2015 7:20 PM ]

S&P on Monday downgraded Russia's credit grade to junk status.

Standard and Poor's international rating agency on Monday downgraded Russia's credit grade to junk status.

The agency has cut Russia’s rating by one notch to BB+ from BBB- on grounds that the country’s economy has weakened. All ratings below BBB- are considered "junk" as they are below the lowest investment grade rating.

"The downgrade reflects our view that Russia's monetary policy flexibility has become more limited and its economic growth prospects have weakened," it said in a statement.

“We also see a heightened risk that external and fiscal buffers will deteriorate due to rising external pressures and increased government support to the economy."

Standard and Poor's is the first to move Russia down into the speculative or "junk" territory.

Moody's earlier this month cut Moscow's rating to 'Baa3', one level above junk, as did Fitch, which moved it to 'BBB-'.

Russia's economy has been hit hard by the double impact of weaker prices for its energy exports as well as Western sanctions.

S&P added that it anticipates the asset quality in Russian financial system to deteriorate given the weaker ruble, restricted access of key areas of the economy to international capital markets due to sanctions and economic recession in 2015.

"We do not currently expect that the government will be able to effectively tackle the long-standing structural obstacles to stronger economic growth over our 2015-2018 forecast horizon," it said.

Those obstacles include perceived corruption, the weak rule of law, the state's pervasive role in the economy, and the challenging business and investment climate, according to the ratings agency.

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