Credit rating firm Standard & Poor’s slashed Russia’s sovereign debt rating today, and hinted further cuts are in the pipeline if U.S. and its Western allies roll out more sanctions against Kremlin over Ukraine tensions.
S&P downgraded Russia’s rating one level to BBB-, which places it in the same level with Azerbaijan and Brazil. The rating, which is in negative territory, is also one notch higher than junk status. The rouble and local bonds plunged, as Russia blamed the action on political influence.
Ever since Russia annexed Crimea from Ukraine, investors have moved money out of Russia in droves, pulling out $63.7 billion in the first quarter. With S&P’s downgrade, outflows will now accelerate even further.
“The tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” said the ratings agency in a statement.
The government has moved in to arrest the rouble’s decline by spending billion of dollar to shore it up. The move follows an earlier rating cut to negative by Fitch Ratings, while Moody’s Investors Service said they are considering a downgrade.
Russia’s Economy Minister Alexei Ulyukayev waved off the decision, saying that investors had expected the downgrade and that it won’t influence their actions, reported Bloomberg. He further termed the ratings cut as “a kind of a politically motivated decision.”
While President Vladimir Putin said yesterday that the sanctions have hurt the economy, he insisted that Kremlin will launch a military response if Ukraine attacked pro-Russia separatists in the eastern part of the country. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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