BENGALURU/MOSCOW: Fitch yesterday downgraded Russia's sovereign credit rating by six notches to “junk” status in response to unprecedented sanctions triggered by the West against the country over its invasion of Ukraine.
Fitch downgraded Russia to ‘B’ from ‘BBB’ and placed the country’s ratings on Rating Watch Negative.
Both the countries' financial markets have unsurprisingly been thrown into turmoil by the events in recent days, which mark the biggest military attack in Europe since World War Two and have seen Moscow hit with stiff Western sanctions.
Fitch said it expects further ratcheting up of sanctions on Russian banks.
These sanctions are likely to weigh on Russia's ability to pay debt, the rating agency added.
Sanctions imposed on Russia have significantly increased the chance of the country defaulting on its dollar and other international market government debt, analysts at JPMorgan and elsewhere warned yesterday.
The sanctions imposed by Western countries will also markedly weaken Russia's gross domestic product growth potential relative to the rating agency's previous assessment of 1.6%, Fitch said.
Last week, S&P lowered Russia's rating to 'junk' status and Moody's put the country on review for a downgrade to junk.
Yesterday, the rouble touched a record low of 110 to the dollar in Moscow and crawled back near 100 in other trading platforms, though it continued under pressure as Russia's financial system teetered under the weight of Western sanctions.
The Russian stock market remained closed and trading on bonds showed wide bid-ask spreads and little-to-no volume.
The rouble fell 4.5% to 106.02 against the dollar in Moscow trade, earlier hitting 110.0, a record low. It has lost 30% of its value against the dollar since the start of the year. Against the euro, it shed 2.5% on Wednesday to finish the day at 115.40.
But trading outside of Russia saw the currency rebound to end the day up 6% to 100 on the EBS platform and 7.6% at 97.6 elsewhere.
The currency is still over 20% weaker than where it traded at during the first half of February. – Reuters