Sanctions Cost Russia One Rung on Credit Ranking, Fitch Says
Sanctions Still Cost Russia One Rung on Credit Score, Fitch Says
(Bloomberg) --
Russia’s credit score at Fitch Ratings is back to where it was before the crisis in Ukraine almost half a decade ago, but uncertainty over U.S. penalties still stifles the nation’s ranking.
“Sanctions overall have great importance and they are detracting one notch from Russia’s current rate,” said Erich Arispe, director of sovereigns at Fitch in London. Fitch lifted Russia’s rating to BBB on Friday, citing its strong finances and focus on inflation, just one week after the U.S. imposed new penalties.
The latest U.S. measures were softer than some investors had feared and “do not impact Russia’s fundamentals,” according to Arispe. But Fitch warned that the threat of additional sanctions hadn’t gone away and continued to weigh on Russia’s credit profile.
The annexation of Crimea in 2014 and the international penalties that followed were compounded by a drop in oil prices that hobbled the ruble and triggered a spate of ratings downgrades into junk territory. Russian policy “had to adjust to a new reality” and focus on stabilizing the economy, Arispe said.
Moody’s Investors Service returned Russia’s rating to investment grade in February after a similar move by S&P Global Ratings in 2018, leaving the country two steps and one step below their pre-Crimea levels, respectively.
Caution Vindicated
“For Russian policy makers, the upgrade serves as a vindication of their fiscal and monetary conservatism during the last five years,” said Tatiana Orlova, an economist at Emerginomics in London.
Fitch’s latest move won’t lead to a surge in inflows, according to ING economist Dmitry Dolgin. “The obstacles to further portfolio inflows are related not the theoretical probability of default, but to the risk of further sanctions, which essentially remain unchanged.”
The U.S. imposed new sanctions on Russia at the start of the month, banning U.S. banks from buying new issues of non-ruble Eurobonds, but leaving the market for ruble securities unaffected. The local currency fell 0.3% to 65.6100 against the dollar as of 11 a.m. in Moscow, tracking other emerging markets. Bond yields were steady.
“The sanctions momentum needs to die down for upgrades by other agencies to materialize,” Orlova said.
--With assistance from Olga Voitova.
To contact the reporters on this story: Áine Quinn in Moscow at aquinn38@bloomberg.net;Anna Andrianova in Moscow at aandrianova@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Alex Nicholson, Natasha Doff
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