Tags: russia | credit | rating | junk

Russia Credit Rating Is Junk, but Experts Say Default Not Likely

By    |   Monday, 26 Jan 2015 03:56 PM

Standard & Poor dropped Russia’s credit rating to "junk" on Monday, citing concerns that the country’s economic growth and monetary policy flexibility had "weakened."

In a press release, S&P said the foreign currency sovereign credit ratings on Russia would be lowered one notch to "BB+/B" and the local currency sovereign credit rating dropped to "BBB-/A-3." The organization also said there is a negative outlook for the country, "reflecting our view that Russia’s monetary policy flexibility could diminish further."

S&P said the "sovereign ratings" are typically published in accordance with a calendar date that is pre-set, which for Russia would normally have been April 17, 2015, but deviations are allowed under certain circumstances.

"In this case, the reason for the deviation is a significant change in our perception of Russia's monetary flexibility over the 2015-2018 forecast horizon and the effect we expect Russia's weakening economy to have on its financial system," the S&P release said. "As a result, we have revised downward our expectations on key macroeconomic indicators."

Moody’s downgraded Russia’s bond rating on Jan. 16, citing expectations that “substantial oil price and exchange rate shock will further undermine the country’s already subdued growth prospects over the medium term.”

ETF Trends reported that the four worst-performing exchange traded funds on Monday were all Russian funds as a result of the S&P’s junk rating.

Despite the problems, the odds that Russia will default were called “slim” by ETF Trends earlier in January.

“Russia’s current foreign debt is not large: $731 billion, or about 34 percent of Russia’s annual GDP,” the website quoted information from Research Affiliates. “Direct government debt is $73 billion and state-owned banks and corporations owe an additional $304 billion. By international standards this is benign. U.S. external debt is close to 100 percent of GDP, for example. In consideration of Russia’s $478 billion currency reserves, accumulated over the past decade, it seems absurd to worry about default.”

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Standard & Poor dropped Russia’s credit rating to "junk" on Monday, citing concerns that the country’s economic growth and monetary policy flexibility had "weakened."
russia, credit, rating, junk
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2015-56-26
Monday, 26 Jan 2015 03:56 PM
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