Russia downgraded to junk status for first time in decade

S&P says downgrade caused by reduced flexibility to cut interest rates and weakening of financial system as oil price drops

Russia’s credit rating has been downgraded to junk status for the first time in a decade due to the collapsing oil price, the tumbling value of the rouble and sanctions imposed because of its intervention in Ukraine.
Ratings agency Standard & Poor’s said the downgrade was caused by the country’s reduced flexibility to cut interest rates and a weakening of the financial system.
The ratings agency said the Central Bank of Russia “faces increasingly difficult monetary policy decisions while also trying to support sustainable GDP growth”. It added: “These challenges result from the inflationary effects of exchange rate depreciation and sanctions from the west as well as counter-sanctions imposed by Russia.”
Attempts to shore up the value of the rouble have had only a temporary effect, Standard & Poor’s said, noting that the 750 basis point rise in interest rates last month to take interest rates up to 17% had only a limited impact on the rouble-dollar exchange rate.
“The rouble briefly appreciated against the dollar but has since continued to depreciate, reaching about 66 roubles to the dollar, compared to about 35 a year ago,” S&P said. The move pushed the rouble lower against the US currency on Monday , at 67 per dollar.
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