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 percent to about 68.5 rubles to the dollar.
Standard & Poor’s said that Russia’s financial system is weakening, limiting room for maneuver 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 percent this year for the first time since President Vladimir Putin took the helm in 2000.
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.