Fitch, Moody’s slash Russia’s sovereign rating to junk

On Wednesday, Fitch and Moody’s downgraded Russia’s sovereign credit rating by six, bringing it to ‘junk’ status. The sanctions are weakening the Russian economy and creating doubt in Russia’s ability for servicing debt. 

Fitch and Moody’s bring Russia’s sovereign rating to junk status

Russian financial markets are in turmoil due to sanctions imposed following the invasion of Ukraine. The attack is the biggest in Europe since the Second World War. Russian invasion is triggering a huge wave of credit warnings, forcing the rating to fall and impact the nation’s credit. Last week, S&P lowered its rating to a ‘junk’ status. Moreover, this also prompted MSCI and FTSE Russel, index providers to announce the removal of Russian equities from their indexes. A top-tier MSCI executive called the Russian stock market ‘uninvestable’ last week. 

The new decision by MSCI and FTSE Russel will be effective from March 9 and 7 respectively. MSCI also added that the Russian indexes from emerging markets will be moving to standalone market status. Currently, the country has a weighting of 3.24% in the MSCI emerging market benchmark. Additionally, the Institute of International Finance is predicting a two-digit contradiction in this year’s economic growth. Fitch is downgrading Russia from its previously B rating to BBB rating, making it a “rating watch negative”. 

Impact of West’s sanctions on Russia

Last week, Moody’s was also flagging the possibility of a downgrade in ratings. In a shocking move, Moody’s cut Russia’s rating by six notches, pushing it to Baa3 from B3. “The severity of international sanctions in response to Russia’s military invasion of Ukraine has heightened macro-financial stability risks, represents a huge shock to Russia’s credit fundamentals and could undermine its willingness to service government debt,” revealed a Fitch report. According to Fitch’s the sanctions from the US and EU are stopping sanctions with the Russian central bank. They believe that this will have a “much larger impact on Russia’s credit fundamentals than any previous sanctions”. 

“The sanctions could also weigh on Russia’s willingness to repay debt. President Putin’s response to putting nuclear forces on high alert appears to diminish the prospect of him changing course on Ukraine to the degree required to reverse rapidly tightening sanctions,” added the Fitch in a warning. They are also expecting the sanctions on Russian banks to start rising. Moody is expecting the sanctions and their severity to go beyond their initial expectations. Russia is retaliating against the sanctions with several measures for shoring up the economic defenses.