S&P Downgrades Russia Currency Near Junk

Russia paid for the instability it has helped create in Ukraine and the surrounding areas. S&P cut its foreign currency rating to BBB-/A-3 from BBB-/A-2. The outlook on the currency remains “negative.”

In its note on the downgrade S&P said:

  • In our view, the large capital outflows from Russia in the first quarter of 2014 heighten the risk of a marked deterioration in external financing, either through a significant shift in foreign direct investments or portfolio equity investments. We see this as a risk to Russia’s economic growth prospects.
  • We are therefore lowering our foreign currency ratings on Russia to ‘BBB-/A-3’ from ‘BBB/A-2’, lowering our local-currency long-term rating to ‘BBB’ from ‘BBB+’, and affirming our local-currency short-term rating at ‘A-2’.
  • The outlook on both the foreign and local currency ratings remains negative. If we perceived increased risks to Russia’s creditworthiness stemming from much weaker medium-term economic growth or due to reduced monetary policy flexibility, we could lower our sovereign ratings on Russia further. We could also lower our ratings on Russia if tighter sanctions were to result in additional weakening of Russia’s net external position.

It might already be argued that Russia has become financially isolated and that its markets have collapsed under the weight of its belligerence. However, there is every chance that as months pass and the political and military situations worse, there will be cuts by other rating agencies.

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