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Russia’s Drop to Junk Rating Likely to Spiral Further Down

suffering russians

For the first time in a decade, Standard & Poor’s gave Russia a junk rating, and two other ratings agencies removed the country from investment grade status, according to Bloomberg. Russia’s economy has been a long-term tale of woe with the price of oil, one of Russia’s major exports, plunging more than 50% in the last year, and the ruble falling through the floor. The Russian Central Banks infusion of cash to prop up the currency has met with only tepid results.

The recent attacks on eastern Ukraine by pro-Russian forces has caused Europe to renew talks of tightening sanctions. The ruble dropped to record lows and bonds tumbled. The ruble fell 6.6% on Monday and closed at a low of 68. 7990 per dollar. Market Vectors Russia ETF fell 7.4% early Tuesday.

Slava Smolyaninov, strategist of UralSib Capital in Moscow said, “Financials will get hit more significantly as their portfolios and balance sheets suffer from the weakening ruble and depreciating asset values, ” according to livemint.com.

Local currency government bonds due in 5 years lost 3 days of increases and drove the yield 55 basis points higher to 15.25%. The rate of bonds have almost doubled since Vladimir Putin’s invasion of the Crimea. The central bank rose interest rates 650 basis points to 17%, with a priority of stabilizing the ruble over rescuing the larger economy.

See also: Standard & Poor Rates Russia’s Credit as ‘Junk’

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