World Economy

Moody’s Slashes Russia Rating

Moody’s Slashes  Russia Rating Moody’s Slashes  Russia Rating

Russia’s ruble dropped along with sovereign bonds after the country’s credit rating was cut to the second-lowest investment grade by Moody’s Investors Service amid sanctions over Ukraine.

Moody’s downgraded the sovereign one level to Baa2 from Baa1 and kept a negative outlook on the rating on Oct. 17. It is in line with Fitch Ratings Ltd.’s credit grade and one step above Standard & Poor’s, which lowered Russia to BBB- in April. The yield on the nation’s March 2030 Eurobond rose four basis points to 4.86 percent. The ruble weakened 0.4 percent to 40.9050 versus the dollar as of 2:18 p.m. in Moscow, Bloomberg reported.

Russia has spent $13 billion from its foreign reserves this month to slow the ruble’s weakening as tumbling oil prices add to the woes of an economy that’s teetering toward recession amid US and European Union sanctions.

President Vladimir Putin and European negotiators are struggling to hold together a six-week truce in eastern Ukraine, inching forward in talks to prevent the fighting from escalating.

“Deteriorating sentiment is weighing more on the ruble after Moody’s rating cut,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail today.

 No Breakthrough

The downgrade isn’t “really critical” because it maintains Russia’s investment-grade status, Vladimir Osakovskiy, chief economist for Russia at Bank of America Corp. in Moscow, said by phone Sunday.

The currency is under pressure as penalties block companies from western debt markets and deepen Russia’s economic slump, while oil trades near four-year lows. The interventions have drained almost $60 billion from Russia’s foreign reserves this year. The Bank of Russia sold $2.12 billion on Oct. 16, according to a website statement Monday.

The extra yield investors demand to own Russia’s dollar-denominated government bonds due in September 2023 instead of similar Treasuries has increased as the US and its allies accuse Russia of inciting the rebellion in eastern Ukraine, an allegation Putin denies. The spread was 2.83 percentage points today, compared with an average of 2.16 since the notes were sold 13 months ago, according to data compiled by Bloomberg.

Banks are making brisk market-call reversals amid steep swings in Russian stocks as investors react to developments in Ukraine.

Russia won’t spend all of its $451.7 billion in reserves defending the ruble, Putin said on Oct. 17.

“Bank of Russia, on the one hand, will pursue balanced financial policies,” Putin told reporters on the trip to Milan. “That means that it will use elements of a floating exchange rate and won’t mindlessly burn up all its reserves. But there’s enough reserves to adjust the level of the national currency.”