S&P downgrades Russian Sovereign credit rating to Junk
S&P has downgraded Russia's sovereign credit rating to junk due to oil price decline and sanctions on the country. For the first time in a decade, Russian credit rating has gone below investment grade. This could mean further decline in rouble and higher cost of imports.
The S&P downgrade pushed rouble to 68.6 against US dollar. During the past two months, rouble has seen increased volatility. Today's decline of over six percent could also push the rates for Russian sovereign debt costs.
The Russian economy is in turmoil following sanctions from the Western economies. Russia faces major economic hurdles in the year ahead as the energy prices have slumped over the last six months. While many emerging economies are enjoying the decline in oil prices, leading to lower cost of living, Russian finance ministry will have tough job keeping the balance sheet in control.
Finance Minister Anton Siluanov has played down the impact of downgrade. The Finance Ministry recently discussed the Russian economy with analysts from S&P and Moody's after the reports of an imminent downgrade surfaced.
Last month, the Russian central bank increased the interest rates to more than 16 percent. Russian economy is expected to slide into recession and the decline could continue in 2016 as well considering the forecast for crude oil in $30-45 range over the next 12 months.
Finance Minister Siluanov said, "There's no reason to dramatize the situation. The decision shouldn't have a further serious impact on the capital market because market participants already priced in the risks of a downgrade to Russia's credit rating."
Moody's Investors Services and Fitch Ratings have downgraded Russia to their lowest investment grade earlier this month. The Russian economy will be highly dependent on oil and gas prices over the next couple of years.
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