Fitch downgrades Russia to 'BBB' from 'BBB+'
6:29 AM ET, Feb 04, 2009 - By William L. WattsLONDON (MarketWatch) -- Credit-ratings agency Fitch Ratings on Wednesday said it downgraded the Russian Federation's foreign and local currency issuer default ratings, or IDRs, to 'BBB' from 'BBB+.' "The downgrade reflects the negative impact on Russia from the fall in commodity prices and the dislocation to global capital markets that has left Russian banks and companies struggling to refinance external debt, and the difficulties Russia faces in managing the necessary macroeconomic policy adjustments," said Edward Parker, head of emerging Europe in Fitch's sovereigns team. Fitch also downgraded Russia's short-term foreign currency IDR to 'F3' from 'F2' and the country ceilings to 'BBB+' from 'A-.
The outlooks on Russia's long-term ratings remain negative, Fitch said.
Fitch cuts Russia's ratings on rapid fall in reserves
By Polya Lesova, MarketWatch Last update: 10:57 a.m. EST Feb. 4, 2009
NEW YORK (MarketWatch) -- Fitch Ratings cut Russia's sovereign credit ratings to only two notches above non-investment or "junk" status Wednesday, saying the sharp decline in commodity prices, capital flight and the rapid depletion of its foreign exchange reserves have weakened the country's balance sheet.
Fitch Ratings downgraded Russia's long-term foreign- and local-currency issuer default ratings to BBB from BBB+. The outlook on the ratings remains negative, indicating that further downgrades may be coming.
Standard & Poor's, another ratings agency, cut Russia's ratings last December to BBB/A-3 from BBB+/A-2, also citing capital outflows and the steep decline in reserves. Read more on S&P downgrade.
After Fitch's downgrade Wednesday, the Russian ruble fell nearly 1% against the U.S. dollar, taking the ruble basket to 40.92, or within a whisker of the central bank's targeted limit, according to RBC Capital Markets.
The ruble, a managed currency, has been under heavy pressure in recent days, raising speculation about whether the Russian central bank will continue its aggressive defense of the unit.
The downgrade of Russia's ratings puts pressure on the euro amid expectations Russia will be forced to sell euros to rebalance its currency basket. See Currencies.
"The downgrade reflects the negative impact on Russia from the fall in commodity prices and the dislocation to global capital markets that has left Russian banks and companies struggling to refinance external debt, and the difficulties Russia faces in managing the necessary macroeconomic policy adjustments," said Edward Parker, head of Emerging Europe in Fitch's sovereigns team.
"The scale of capital outflows and the pace of decline in Russia's foreign exchange reserves have materially weakened the sovereign balance sheet," Parker said.
Since last summer, Russia has spent more than $200 billion of its international reserves, largely in an attempt to defend the ruble exchange rate. Reserves currently stand at $386.5 billion.
Fitch expressed concern about the depletion of foreign exchange reserves caused by gross private sector capital outflows, which were $94 billion in the fourth quarter of last year.
Capital outflows might continue if the authorities pursue inconsistent macroeconomic policies or if there is an ongoing lack of confidence in the country's financial outlook and institutions, Fitch said.
Dollarization in the banking system is rising, while the ruble has continued to decline since the Central Bank of Russia set a new upper trading limit for the currency in late January, effectively allowing 10% devaluation and ending the series of mini-devaluations that it had allowed since November.
"Monetary and exchange rate policy remains a challenge for the CBR in terms of whether to continue using foreign exchange reserves to support the ruble (which would weaken the sovereign balance sheet), tighten domestic liquidity (which could adversely affect the banks) or revise its exchange-rate policy (which would adversely affect its credibility)," Fitch said.
While Russia still has the world's third highest reserves and is a net external creditor, Fitch said that risks to creditworthiness remain on the downside.
The ratings agency forecasts zero growth in Russia's gross domestic product in 2009. In contract, Russia's economy grew by 5.6% last year and by 8.1% in 2007. Read more on the slowing of Russia's economy.
Lars Rasmussen, an analyst at Denmark's Danske Bank, said the risks associated with the recent sharp reversal of capital flows will be a "real test" for the Russian central bank.
"The central bank has to decide whether it wants to keep defending the ruble, risking further downgrades and making it more expensive for Russian companies to obtain credit, or whether it will allow the ruble to weaken beyond the basket/ruble 41 level and then risk having all the external debt be more expensive to pay back for corporates," Rasmussen said.
The downgrade of Russia's ratings, combined with the 18% devaluation of Kazakhstan's currency Wednesday, increases uncertainty in the entire Eastern European region, he said.
Polya Lesova is a New York-based reporter for MarketWatch.
"sane", ha sottolineato Jacques Aigrain, presidente della direzione di Swiss Re. 