Standard & Poor’s downgrades Russia’s creditworthiness to speculative grade

BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/05

On Monday (Jan. 26), Standard & Poor’s lowered Russian sovereign foreign currency borrowing to BB+, a notch below investor grade. Speculative-grade bonds are evaluated to have higher risk. S&P based the downgrade on e.g. Russia’s deteriorating growth outlook, reduced possibilities for monetary policy to react to developments, as well as increased risks to the external balance and government finances. Russia’s creditworthiness is now on par with Bulgaria, Indonesia and Turkey.

Fitch and Moody’s, the two other big international ratings agencies, also lowered their ratings of Russia this month, but both still keep Russia barely in the investment- grade realm. All ratings agencies hold negative outlooks for the Russian economy.

The downgrade came as no big surprise to the markets. On the following day, the ruble weakened only slightly and Russian stock indices were roughly unchanged. The reduction in the credit rating complicates the availability of credit and raises borrowing costs, although the Russian government has no plans at the moment to increase its foreign debt. The borrowing of Russian firms from abroad has largely dried up already because access to credit has been limited due to factors such as increased uncertainty and economic sanctions.

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