MOSCOW (Reuters) – Ratings agency S&P cut Russia’s sovereign credit rating to below investment grade, or “junk” status, on Monday for the first time in a decade.
The ruble fell after the news to 67.98 against the dollar, more than 5 per cent lower than the previous close on the Moscow Exchange.
S&P said in a statement it had cut the rating from BBB- to BB+, with a negative outlook, and that Russia’s economic growth prospects had weakened.
External and fiscal “buffers” were likely to deteriorate because of rising external pressure and increased government support to the Russian economy, it said.
“The downgrade throws into stark relief the severity of Russia’s financial and economic crisis,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy in London.
“It’s going to make it more difficult for large corporate and banks to refinance themselves, at a time when ratings agencies clearly have doubts about the macroeconomic and external environment for Russia.”
The downgrade marks the first time in more than 10 years that Russian sovereign debt has been rated below investment grade, in what some call “junk” territory.
The decision could not only harm Russia’s image among investors but push up its borrowing costs, as many mainstream investment and pension funds have rules preventing them from buying anything not classed as investment grade.
The cost of insuring Russian sovereign debt for five years widened to 591 basis points after the S&P move, from 552 on Friday, Markit said.
S&P had warned in late December that it could deprive Russia of its investment-grade credit rating as soon as mid-January, following a rapid deterioration of the country’s monetary flexibility and a weakening economy.
Russia’s economy is expected to slide into recession this year as the low oil prices depresses export revenues, and the sanctions over Ukraine have cut some of its biggest companies off from Western funding.