Fitch, Moody's Downgrade Russia's Sovereign Rating To Junk

Ratings agencies Fitch and Moody's downgraded Russia by six notches to "junk" status, saying Western sanctions threw into doubt its ability to service debt and would weaken the economy, Mehr Bedi and Megan Davies reported for Reuters.

Photo Insert: Fitch downgraded Russia to "B" from "BBB" and placed the country's ratings on "rating watch negative."

Russia's financial markets have been thrown into turmoil by sanctions imposed over its invasion of Ukraine, the biggest attack on a European state since World War II. The invasion has triggered a flurry of credit rating moves and dire warnings about the impact on Russia's economy.

S&P lowered Russia's rating to junk status last week. It also prompted index providers FTSE Russell and MSCI to announce on Wednesday that they will remove Russian equities from all their indexes after a top MSCI executive earlier this week called Russia's stock market "uninvestable".

FTSE Russell said the decision will be effective from March 7, while MSCI said its decision will be implemented in one step across all MSCI indexes as of the close on March 9. MSCI said it is also reclassifying MSCI Russia Indexes from emerging markets to standalone markets status.

Russia has a weighting of 3.24% in MSCI's emerging market benchmark and a weighting of around 30 basis points in the index provider's global benchmark. The Institute of International Finance predicts a double-digit contraction in economic growth this year.

Fitch downgraded Russia to "B" from "BBB" and placed the country's ratings on "rating watch negative". Moody's, which last week had flagged the possibility of a downgrade, also cut the country's rating by six notches, to B3 from Baa3.

Fitch said the only other precedent to such a large six-notch downgrade on a single sovereign entity was South Korea in 1997.

"The severity of international sanctions in response to Russia's military invasion of Ukraine has heightened macro-financial stability risks, represents a huge shock to Russia's credit fundamentals, and could undermine its willingness to service government debt," Fitch said in a report.

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