S&P cuts Russia's rating to junk: Sanctions and oil slump hammer ruble


Standard & Poor’s ratings agency reports decision to downgrade sovereign credit rating due to Russia’s weakened economic growth prospects.

S&P, which last downgraded Russia in April, cut the sovereign one step to BB+, according to a statement released on Monday, the same level as countries including Bulgaria and Indonesia. The downgrade leaves Russia in so-called ‘junk’ territory for the first time in a decade, which could push up its borrowing costs as many mainstream investment and pension funds have rules preventing them from buying anything not classed as investment grade.

“In our view, the Russian Federation’s monetary policy flexibility has weakened, as have its economic growth prospects,” said S&P.

In December, S&P warned that Russia had few options left to revive its ailing economy and signaled that the agency had place the country on review for a potential downgrade.

The situation has only deteriorated as oil prices continue to fall. Crude oil current trades around $45 a barrel, compared to over $100 as recently as July. Russia’s government budget assumed that oil would trade above $100 this year.

The nation’s currency has plunged to all-time lows, raising concerns that it is headed for a full-blown financial crisis. It’s lost over 40% of its value against the U.S. dollar. Russians have been rushing to withdraw rubles and convert them into dollars, worried about the devaluation and the soaring price of imported goods.

Russia’s ability to carry out monetary policy, according to S&P, which has a negative outlook for the country and projects annual growth of 0.5% through 2018. In comparison, Russia has grown at a rate of 2.4% over the past four years

The rating cut will make it harder and more expensive for Russia to borrow money. Many investors are required to hold only investment grade bonds and will now be forced to sell Russian paper.

www.belsat.eu/en, following Bloomberg, CNN

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