Russia's Sovereign Rating Downgraded To 'Junk' Status By Fitch And Moody’s: Report

Fitch downgraded Russia to "B" from "BBB" and placed the country's ratings on "rating watch negative" while Moody's cut the country's rating by six notches, to B3 from Baa3.

Anti-war protests continue in Russia | Getty

New Delhi: The military operation of Russia in Ukraine not only triggered economic sanctions but also led to the downgrading of Russia's sovereign credit rating by rating agencies Fitch and Moody’s on Wednesday.

Fitch and Moody's slashed Russia's sovereign credit rating six notches to "junk" status stating that the Western sanctions have raised concerns over Russia's ability to service its debt and weakening of its economy, according to the news agency Reuters.

Russia's financial markets have been witnessing turmoil since the West imposed sanctions after the onset of military operation began in Ukraine.

In its response, Russia beefed up its economic defenses and retaliated against Western restrictions. It has raised its main lending rate to 20 percent, banned Russian brokers from selling securities held by foreigners, ordered exporting companies to buttress the rouble and said it would stop foreign investors selling assets. 

Reason Behind The Downgrade

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

"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, according to Reuters.

Fitch noted that the sanctions prohibiting any transactions with the Central Bank of Russia would have a "much larger impact on Russia's credit fundamentals than any previous sanctions," rendering much of Russia's international reserves unusable for FX intervention.

The rating agency noted that the sanctions imposed by Western countries will also markedly weaken Russia's GDP growth potential relative to the ratings agency's previous assessment of 1.6 percent.

"The sanctions could also weigh on Russia's willingness to repay debt," Fitch warned.

On the other hand, Moody's noted that the scope and severity of the sanctions "have gone beyond Moody's initial expectations and will have material credit implications."