Russia: credit ratings: April 2014
Published 1 May 2014
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0.1 Summary
Standard and Poor’s cuts Russia’s sovereign rating to BBB- and retains its negative outlook. Russia now one step from a “C” rating. Central Bank of Russia raises interest rates to 7.5% in the face of rising inflation and pressure on the Rouble.
0.2 Detail
On Friday 25 April, Standard and Poor’s rating agency cut Russia’s sovereign foreign debt rating from BBB to BBB-, just one grade away from “junk” status. The agency has kept Russia on a negative watch, suggesting that a further downgrade may be imminent, particularly if western governments impose further sanctions. Moody’s and Fitch have yet to follow suit, although they too have Russia’s rating under review. In a statement, Standard and Poor’s said:
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
Russia’s Economic Development minister Alexei Ulukayev said:
It’s an expected decision, because first the outlook was revised, then the ratings are revised” “It’s clear that it is partly a politically motivated decision, and possibly it is partly a reaction to the real worsening of the macroeconomic situation in which we found ourselves.
Several hours later, the Central Bank increased interest rates by 0.5% to 7.5%. This follows a rate rise on 3rd March from 5% to 7%. The Central Bank quoted a year on year consumer price inflation rate of 7.2% and a core inflation figure of 6% as troubling. But inflation is not the only concern. The Rouble has been under sustained pressure on the foreign exchange markets, and has required $35 billion of intervention to arrest its decline since the start of the year.
According to the Central Bank, growth is constrained by a number of factors including: a historically low unemployment rate, high utilisation of production capacity, slow labour productivity growth, and crucially, contracting fixed capital investment. The Bank acknowledged that “uncertainty about the international political situation also hampers production and investment”.
0.3 Disclaimer
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