BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/09
Moody’s said its downgrade reflects both the further weakening of Russian economic conditions and the fact that international reactions to the Ukraine crisis may make Russian officials to adopt measures that could directly or indirectly affect the country’s ability to stick to timetables for servicing international debt. At the moment, however, Moody’s sees the likelihood of default to be quite small.
The finance ministry criticised Moody’s for basing its decision on an over-pessimistic outlook for the Russian economy. Finance minister Anton Siluanov said that the decision was mainly motivated by politics.
Large institutional investors’ rules usually allow them to invest in securities classed as investment-grade by at least two of the big-three international credit ratings agencies. Moody’s decision could then force some investors to divest their Russian securities. A significant number of risk-averse investors have apparently already sold off their Russian investments on repeated credit downgrades that have taken place over the past 12 months. As a result, no huge selloffs or major capital exodus from Russia are expected.
The credit-rating downgrade will, however, raise the costs of servicing existing and new credit for both the Russian government and Russian firms.