Russian Credit Rating Slashed, Economic Future Remains Dim.
The struggling Russian economy was short on good news last week as Moody’s Investors Serviceslashed the country’s credit rating to its second lowest level, Baa2, citing the crisis in Ukraine and Western sanctions.
The move follows similar ratings downgrades by Fitch Ratings Ltd and Standard & Poor’s and reaffirms Russia’s meager medium-term growth prospects. In the more immediate future, Russian equity markets remain a risky play. Long term, the picture is less clear and Russia’s vitally important energy industry is riddled with uncertainties.
Amid Western sanctions over Russia’s actions in Ukraine, plummeting oil prices have contributed to the ruble’s rapid decline – already down 19 percent on the year against the dollar. To date, Russia’s central bank has spentapproximately $60 billion to prop up the struggling currency. If commodity prices remain low for a prolonged period, Moody’s has warned that it could further downgrade Russia’s rating, a step that former Finance Minister Alexei Kudrinviews as the end of the line for Russia’s financial markets.
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