- Ratings company cites stabilizing finances, calm in Ukraine
- Affirms Ba1 credit rating, one step below investment grade
Russia’s credit-rating outlook was raised to stable from negative by Moody’s Investors Service, which cited a stabilization of external finances and a diminished likelihood of the economy facing a further “intense shock” in the next 12 to 18 months after being sanctioned over Ukraine.
Moody’s affirmed Russia’s Ba1 credit ranking, which is one step below investment grade. It lowered the rating to junk in February.
Russia’s gross domestic product is forecast to contract 3.8 percent in 2015 and resume growth in the third quarter next year, according to the median estimate of economists surveyed by Bloomberg. The country is beset by its first recession since 2009 as international financing restrictions and other sanctions linked to the Ukraine conflict exacerbate the impact of a plunge in the price of oil, its biggest export, which traded at a six-year low this week.
Moody’s said it expects Russia’s external financial position to “remain relatively robust.” The negative effect of sanctions and low oil prices on foreign-exchange reserves this year has been milder than expected as policy adjustments including a floating exchange rate and the steep depreciation of the ruble have “helped mitigate the shocks.” The ratings company also said the relative calm in eastern Ukraine suggests a lower likelihood that the U.S. and its allies will tighten sanctions.
While the government is expected to draw down 2.6 trillion rubles ($38 billion) from its reserve fund to finance the budget deficit this year, the withdrawals from its deposits at the central bank have been made almost entirely in the local currency. “So, while the government’s savings are being depleted, the official foreign-exchange reserves have been left largely intact,” Moody’s said.
“Moody’s is effectively validating something the market has been talking about in the last weeks -- the situation in Russia turned out to be not as bad as many had expected,” Brian Jacobsen, who helps oversee $242 billion as the chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said by phone. “You have relatively stable oil prices, you have inflation that is not as high as people had expected, you have a decent move up in the equity market, so things are getting better.”
Investors who stuck with Russia through the turmoil in its financial markets this year have been rewarded with returns of about 21 percent on local-currency debt. That outpaced gains in all other sovereign bonds and compared with an average loss of 1.8 percent among developing-nation peers tracked by Bloomberg.