19 Jan 2015
Moody’s downgrades Russia to Baa3 – ING
FXStreet (Barcelona) - Dmitry Polevoy of ING comments that Moody’s has downgraded Russia to Baa3 with a negative outlook and lists the key drivers for the move.
Key Quotes
“Key drivers of the downgrade were (1) concerns over the substantial oil price decline and exchange rate shock effects on already subdued mid-term growth prospects and (2) nearer-term concerns of the agency over the erosion of foreign exchange reserves and fiscal revenues and their effects on government financial strength.”
“In its review for further downgrade the agency will assess (i) the resilience of the government balance sheet to the base-line oil price forecast and a scenario of a further decline under closed external financial markets and (ii) the efficiency of the policy action from the government and the CBR in addressing the economic challenges and risks to its fiscal strength.”
“The move per se is unlikely to cause any significant price decline in Russian external debt, as Moody’s has been the last agency to put the rating on the border between investment and non-investment.”
“Also, 2014 already saw quite active selling from foreign investors and a flight to “underweight” on Russia and current price levels for Russian bonds assume much lower rating than current.”
“The move does highlight concerns over the outlook as S&P is expected to complete its sovereign rating review for Russia by the end of January. The possible downgrade, together with room for others (Fitch or Moody’s) to follow is a risk for investors bound to investment-grade status.”
“Also, the downgrade would be negative for the banking sector as internal risk metrics are usually related to external ratings.“
Key Quotes
“Key drivers of the downgrade were (1) concerns over the substantial oil price decline and exchange rate shock effects on already subdued mid-term growth prospects and (2) nearer-term concerns of the agency over the erosion of foreign exchange reserves and fiscal revenues and their effects on government financial strength.”
“In its review for further downgrade the agency will assess (i) the resilience of the government balance sheet to the base-line oil price forecast and a scenario of a further decline under closed external financial markets and (ii) the efficiency of the policy action from the government and the CBR in addressing the economic challenges and risks to its fiscal strength.”
“The move per se is unlikely to cause any significant price decline in Russian external debt, as Moody’s has been the last agency to put the rating on the border between investment and non-investment.”
“Also, 2014 already saw quite active selling from foreign investors and a flight to “underweight” on Russia and current price levels for Russian bonds assume much lower rating than current.”
“The move does highlight concerns over the outlook as S&P is expected to complete its sovereign rating review for Russia by the end of January. The possible downgrade, together with room for others (Fitch or Moody’s) to follow is a risk for investors bound to investment-grade status.”
“Also, the downgrade would be negative for the banking sector as internal risk metrics are usually related to external ratings.“