Moody's downgrades Russia amid oil slide
January 17, 2015
Moody's cut Russia's credit rating for the second time in four months, lowering it one notch from Baa2 to Baa3 - the lowest level before the start of investments deemed to be speculative and with substantial risk, known more commonly as junk bonds.
"The severe - and likely to be sustained - oil price shock, alongside Russian borrowers' highly restricted international market access due to ongoing sanctions, is undermining economic fundamentals and increasing financial stresses on both the public and the private sectors," Moody's said.
Moody's issued the rate cut as the world's markets shut down for the weekend on Friday evening, a common practice when downgrading a country's perceived creditworthiness. The agency also warned that Russia was under review for a possible further downgrade.
The agency forecast that Russia's GDP would shrink by around 5.5 percent in 2015, and by another 3 percent in 2016, "bringing real growth over the 10 years through 2018 to virtually zero." The agency also cited the weakness of the ruble currency in its statement.
"Added to that," Moody's said, "the risk of politically motivated actions which either directly or indirectly raise risks to creditors is rising in the context of current geopolitical tensions."
Standard and Poor's credit agency was also considering a change in the Russian rating, but said earlier on Friday that it would not make a change until later in January.
Despite a decent rally on Friday, helping push several markets into positive territory before close, oil prices have collapsed from more than $110 (95 euros) per barrel in June to less than $50 currently. Russia, a major exporter of oil and natural gas, has struggled with these diminishing returns, as well as the international sanctions imposed as a result of the conflict in Ukraine.
Russia's rating with Moody's was previously cut from Baa1 to Baa2 in October. However, the country's national debt is extremely low when compared to most countries, at just 11 percent of GDP.
msh/sb (AFP, AP, dpa)