Moscow,: Standard and Poor’s stripped Russia of its investment-grade rating on Monday, cutting it to “junk” status with a warning of weak growth.
“The downgrade reflects our view that Russia’s monetary policy flexibility has become more limited and its economic growth prospects have weakened,” the ratings agency said in a statement announcing the one-notch cut to a ‘BB+’ rating.
The plunge in oil prices and Western sanctions over Moscow’s role in the Ukraine war have pummelled the Russian economy in recent months, with the ruble collapsing in value.
Russia’s finance minister on criticised Standard & Poor’s rating agency for its decision to cut the country’s rating from investment-grade to “junk” status.
Russian Finance Minister Anton Siluanov said the downgrade showed “excessive pessimism. It doesn’t take into account a whole series of factors showing the strong side of the Russian economy”.
“We see no reason to dramatise the situation,” he told Russian news agencies.
Standard and Poor’s is the first major international ratings agency to move Russia down into the speculative or “junk” territory after last downgrading Russia in April. Moody’s earlier this month cut Moscow’s rating one notch to ‘Baa3’, one level above junk, as did Fitch, which moved it to ‘BBB-‘.
The Russian rouble slumped after to the downgrade. Standard and Poor’s now forecasts that Russia’s oil-dependent economy will contract by 2.6 percent in 2015 due to the fall in crude prices and Western sanctions over Ukraine.
It projected that the Russian economy will expand by about 0.5 percent annually in 2015-2018, below the 2.4 percent it notched up over the previous four years.
The lower growth forecast “reflects a lack of external financing due to the introduction of economic sanctions and the sharp decline in oil prices,” said the ratings agency.
“We also expect that declining domestic purchasing power as a result of exchange rate depreciation and rising inflation will likely hamper Russia’s growth prospects,” it added.
The rating agency also said “we believe that Russia’s financial system is weakening and therefore limiting the Central Bank of Russia’s ability to transmit monetary policy.”
Several Russian officials had foreseen the downgrade. Economy Minister Alexei Ulyukayev said last month that market fears of Russia’s credit rating falling to junk levels have contributed to instability of the ruble.
In addition, a downgrade to junk rating would require “$20bn to $30bn in early repayment of foreign loans as stipulated in loan agreements, he told Business FM radio station.
President Vladimir Putin chaired a late meeting on economic issues to discuss an anti-crisis plan prepared by the government. Putin however has avoided the word “crisis” and the precise strategy remains unclear.
AFP
