S&P Cuts Russia's Rating to One Notch Above Junk

Finance | April 25, 2014, Friday // 10:16|  views

Capital flight was among reasons S&P cited for cutting Russia's foreign currency rating. Photo by EPA/BGNES

Standard and Poor's has cut Russia's credit rating from BBB to BBB-, lowering it for the first time in five years.

The agency has kept its negative outlook on the Russian economy, as the Wall Street Journal reported.

After the step by S&P, Russia's rating is now just a step above "speculative" or "non-investment" grade.

S&P explained its decision with an increased risk to investment amid the crisis in Ukraine. "In our view, 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," S&P wrote in its report.

A total of USD 70 B has been drained out of the country since its standoff with Ukraine began a few months ago, which exceeds the amount of capital that left Russia in 2013. The agency even believes that "additional significant outflows of both domestic and foreign capital from the Russian economy" are not unlikely.

In March, Fitch also lowered its outlook for Russia to negative.

Credit ratings determine borrowing costs for countries or companies on international markets.

Russia however believes it can establish its own rating agency to reduce dependence on the "Big Three" (S&P, Moody's and Fitch) or on what it calls "self-named international" organizations which are actually "US agencies".

Economic Minister Alexei Ulukayev was quoted by ITAR-TASS as saying Russia could establish its own rating agency to provide investors with an alternative in choosing ratings.

A step toward setting up a Russian ratings agency was discussed during an official meeting with the participation of Deputy Prime Minister Igor Shuvalov on April 23.

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Tags: S&P, Fitch, Russia, Ukraine, capital, Moody's, Agency, rating, junk


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