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S&P cuts Russian credit rating, Moscow blames politics

S&P cuts Russian credit rating, Moscow blames politics
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Credit agency Standard & Poor’s has cut Russia’s credit rating. It is now at BBB-minus, just one notch above junk – or non-investment – level.

S&P said further downgrades were possible if the West imposed tighter sanctions because of the Ukraine crisis.

Moscow responded that politics had played a role in S&P’s decision.

It is the first downgrade by a major agency following Russia’s annexation of Crimea from Ukraine in March.

Capital outflow

Investment money has been flooding out of Russia since its economy began to weaken last year.

“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 said in a statement.

Both the United States and Europe have threatened harsher and more costly sanctions if Moscow remains involved in its neighbours’ affairs.

Foreign investors have exited Russia en masse, taking $63.7 billion (46 billion euros) with them in the first three months of this year, economic growth has slowed dramatically and Russia’s central bank has spent billions of dollars on keeping the rouble from falling too fast.

Interest rate cut

At the same time the central bank unexpectedly raised its key interest rate to fight inflation as the rouble weakens.

The key one-week minimum auction repo rate was increased by 50 basis points to 7.5 percent.

“The Bank of Russia does not intend to lower the key rate in the coming months,” the bank said in an accompanying statement.

The central bank had been expected to keep rates on hold at its monthly meeting, having raised its key rate by 150 bps in March in response to financial instability linked to the political crisis in Ukraine.

with Reuters

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