Remember that these are the same rating agencies that rated a collection of highly risky loans with ‘AAA’, making them appear ultra-safe.
Fitch Ratings on Wednesday downgraded Russia’s sovereign rating to ‘BBB’ and said further cuts were possible due to low commodity prices, high capital outflows, melting reserves and corporate debt problems.
Fitch’s downgrade follows one from Standard & Poor’s in December, making it the second ratings cut for Russia since the end of the last major financial crisis a decade ago.
On the Fitch scale, Russia would now need to be cut just two more notches to become ‘junk’ rather than ‘investment grade.’
The downgrade pushed the euro down to session lows versus the dollar below $1.29.
“The downgrade reflects the negative impact on Russia from the fall in commodity prices and the dislocation to global capital markets that has left Russian banks and companies struggling to refinance external debt, and the difficulties Russia faces in managing the necessary macroeconomic policy adjustments,” says Edward Parker, Head of Emerging Europe in Fitch’s Sovereigns team.
The agency also said it was concerned by the depletion of Russia’s reserves, which have shrunk by a third, or around $200 billion, since August as Moscow sought to control a slide in the rouble and compensate for record capital outflows.
04 Feb 2009