Moody’s follows S&P in downgrading Russia to non-investment grade – Danske

FXStreet (Barcelona) - Vladimir Miklashevsky, Economist at Danske Bank, notes that pressure on rouble might increase in the coming days as Moody’s follows S&P and cuts Russia’s rating to non-investment grade.

Key Quotes

“Moody’s followed Standard & Poor’s, which in January cut Russia’s long- and shortterm FX debt ratings to junk (BB+ and B from BBB and A-3) retaining its negative outlook, as the country’s economic growth prospects had deteriorated and ‘monetary policy flexibility [had] weakened’.”

“At the same time, it cut the country’s local currency debt ratings to BBB- and A-3 from BBB and A-2.”

“We had been expecting a cut by Moody’s or Fitch for a while, seeing it as one of two major risks for the rouble and sentiment towards Russian assets.”

“Another risk – capital controls – remains possible, but is unlikely unless USD/RUB spikes over 80 or capital outflows reach USD80bn in Q1 15.”

“We expect pressure on the rouble to increase in the coming days as the rouble market reopens tomorrow after the Defender of the Fatherland holiday today.”

“Brent falling below USD60/bbl and the downgrade will also depress the corporate debt market, pushing yields up and widening spreads.”