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Fitch and Moody’s downgraded Russia’s rating by six notches to “garbage” status, saying Western sanctions called into question its ability to service debt and weaken the economy.
Russia’s financial markets have been shaken by sanctions imposed over its invasion of Ukraine, the biggest attack on a European country since World War II.
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The invasion sparked a wave of credit rating changes and terrible warnings about the impact on the Russian economy. S&P downgraded Russia to garbage status last week.
A clock can be seen in the lobby of Fitch Ratings headquarters in New York. REUTERS / Brendan McDermid (USA – Tags: BUSINESS) (REUTERS / Brendan McDermid)
It also prompted FTSE index providers Russell and MSCI to announce on Wednesday that they would remove Russian stocks from all their indexes after MSCI’s chief executive called the Russian stock market “non-investment” earlier this week.
FTSE Russell said the decision will take effect on March 7, while MSCI said its decision will be implemented in one step in all MSCI indexes by the end of March 9. MSCI said it was also reclassifying the MSCI Russia indices from emerging markets to stand-alone markets.
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Russia has a weight of 3.24% in the MSCI .MSCIEF benchmark for emerging markets and a weight of about 30 basis points in the global benchmark of the index provider.
PHOTO: Signs visible in front of Moody’s Corporation headquarters in Manhattan, New York. REUTERS / Andrew Kelly (REUTERS / Andrew Kelly / Reuters Photos)
The Institute of International Finance predicts a double-digit contraction in economic growth this year.
Fitch downgraded Russia to “B” from “BBB” and set the country’s ratings to “negative”. Moody’s, which last week marked the possibility of a downgrade, also lowered the country’s rating by six notches to B3 from Baa3.
Fitch said the only other precedent for such a large downgrade of six degrees for a sovereign entity was South Korea in 1997.
“The severity of international sanctions in response to Russia’s military invasion of Ukraine has increased risks to macro-financial stability, is a huge shock to Russia’s credit base and could undermine its willingness to service sovereign debt,” a Fitch report said.
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Fitch said US and EU sanctions banning all transactions with Russia’s central bank would “have a much greater impact on Russia’s credit base than all previous sanctions”, rendering much of Russia’s international reserves unusable. for foreign exchange intervention.
US President Joe Biden has announced a new round of sanctions against Russia after President Vladimir Putin launched an attack on Ukraine by land, sea and air. (Photo by Drew Anger / Getty Images) (Photo by Drew Anger / Getty Images / Getty Images)
“Sanctions could also weigh on Russia’s willingness to pay off its debt,” Fitch warned. “President Putin’s response to bringing nuclear forces on high alert appears to reduce the prospect of him changing his course toward Ukraine to the extent necessary to reverse the rapidly tightening sanctions.”
Fitch said he expects further sanctions against Russian banks.
Moody’s said Thursday that the scope and severity of the sanctions “have exceeded Moody’s initial expectations and will have significant credit implications”.
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Sanctions imposed by Western countries will also significantly weaken Russia’s GDP growth potential compared to the agency’s previous estimate of 1.6%, Fitch said.
“In this case, the sanctioned frozen / falling assets waved the queue of ratings,” write analysts at Mizuho. They added that “disclosed ratings and benchmark risks could complicate further capital outflows, as reference funds are forced to liquidate rather than hold back.”
Sanctions on Russia have significantly increased the country’s likelihood of defaulting on its dollar in other international markets, analysts at JPMorgan and others said on Wednesday.
Russia has responded to the sanctions with a set of measures to support its economic protection and retaliate against Western restrictions. He raised his key interest rate on loans to 20%, banned Russian brokers from selling foreign-held securities, ordered exporting companies to support the ruble, and said he would stop foreign investors from selling assets.
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The government also plans to use its National Welfare Fund (NWF), a rainy day pillow, to help counter sanctions.
(Report by Mehr Bedi in Bengaluru and Megan Davis in New York; Additional reports by Andrew Galbraith in Shanghai and Vidya Ranganathan in Singapore; Edited by Leslie Adler and Stephen Coates)