Moody’s Investors Service has today downgraded the government of Russia’s sovereign debt rating to Ba1/Not Prime (NP) from Baa3/Prime-3 (P-3). The rating outlook is negative. This rating action concludes the review for downgrade that commenced on January 16, 2015.

Moody’s downgrade of Russia’s government bond rating to Ba1 is driven by the following factors:

  • The continuing crisis in Ukraine and the recent oil price and exchange rate shocks will further undermine Russia’s economic strength and medium-term growth prospects, despite the fiscal and monetary policy responses;
  • The government’s financial strength will diminish materially as a result of fiscal pressures and the continued erosion of Russia’s foreign exchange (FX) reserves in light of ongoing capital outflows and restricted access to international capital markets;
  • The risk is rising, although still very low, that the international response to the military conflict in Ukraine triggers a decision by the Russian authorities that directly or indirectly undermines timely payments on external debt service.

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OVERVIEW

  • Liquidity constraints have narrowed the timeframe during which Greece’s new government can reach an agreement with its official creditors on a financing programme, in our view.
  • We believe the potential uncertainties surrounding the timing and success of such an agreement risk exacerbating deposit outflows, depressing investment, and weakening tax compliance.
  • As a result, we have lowered our long-term rating on Greece to ‘B–’ from ‘B’.
  • The long- and short-term ratings remain on CreditWatch negative.

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OVERVIEW

  • In our view, the Russian Federation’s monetary policy flexibility has weakened, as have its economic growth prospects.
  • We are therefore lowering our foreign currency sovereign credit ratings on Russia to ‘BB+/B’ from ‘BBB-/A-3′ and our local currency sovereign credit ratings to ‘BBB-/A-3′ from ‘BBB/A-2′.
  • At the same time, we removed these ratings from CreditWatch, where they were placed with negative implications on Dec. 23, 2014.
  • The outlook is negative, reflecting our view that Russia’s monetary policy flexibility could diminish further. We could lower the ratings if external and fiscal buffers deteriorate over the next 12 months faster than we currently expect.

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New York,

Moody’s Investors Service has today downgraded Russia’s government bond rating to Baa3/Prime 3 (P-3) from Baa2/Prime 2 (P-2). The rating was also placed on review for further downgrade.

The key drivers behind the downgrade are:

  • Moody’s expectation that the substantial oil price and exchange rate shock will further undermine the country’s already subdued growth prospects over the medium term; and
  • Moody’s nearer-term concerns over the negative impact on the government’s financial strength of the erosion in official foreign exchange buffers and fiscal revenues.

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