Russia's credit rating downgraded to 'junk'
People walk past a money exchange office with a sign showing currency exchange rates in Moscow, Tuesday, Jan. 20, 2015. (AP / Pavel Golovkin)
The Associated Press
Published Monday, January 26, 2015 6:41PM EST
Last Updated Monday, January 26, 2015 6:56PM EST
LONDON -- Standard & Poor's rating agency on Monday downgraded Russia's credit grade by one notch to junk status, citing a weakened economic outlook.
The agency dropped the rating to BB+ from BBB- as it sees the country's financial buffers at risk amid a slide in the country's currency and weakening revenue from oil exports.
"In our view, the Russian Federation's monetary policy flexibility has weakened, as have its economic growth prospects," it said.
Russia's economy has been hit hard by the double impact of weaker prices for its energy exports as well as Western sanctions.
The Russian currency tumbled on the downgrade, dropping some 7 per cent to about 68.5 rubles to the dollar.
Standard & Poor's said that Russia's financial system is weakening, limiting room for manoeuvr for Russia's Central Bank. It said the bank "faces increasingly difficult monetary policy decisions," while also trying to preserve incentives for growth.
The Russian economy is expected to contract by 4 to 5 per cent this year for the first time since President Vladimir Putin took the helm in 2000.
Capital outflows, which averaged $57 billion annually during 2009 to 2013, soared to $152 billion last year. "Stresses could mount for Russian corporations and banks that have foreign currency debt service requirements without a concomitant foreign currency revenue stream," the rating agency said.
Russia's Finance Minister Anton Siluanov sought to play down the anticipated move, saying it reflected the rating agency's "excessive pessimism." He emphasized the Russian economy's strong fundamentals, such as high level of hard currency reserves, trade surplus and low level of state debt.
"These undoubtedly are Russia's advantages in the current macroeconomic conditions," Siluanov said in comments carried by Russian news agencies. "There is no reason to overdramatize the situation."
Prior to the announcement, Putin had a meeting with Cabinet members on anti-crisis measures. He said the government should focus on cutting spending, keeping inflation under control and making sure that the country doesn't waste its hard currency reserves.