Russia kept at junk rating with negative outlook by S&P

[MOSCOW] Russia's foreign-currency credit rating was kept one step below investment grade at Standard & Poor's as policy makers struggle to boost growth and the financial system risks weakening due to a lack of external funding amid sanctions.

The ratings company also left the "negative" outlook on its BB+ grade unchanged, according to a statement released on Friday. That puts Russia's rating on par with Bulgaria and Indonesia.

S&P stripped Russia of its investment grade in January for the first time in a decade as plunging oil prices and sanctions over the conflict in Ukraine push the world's largest energy exporter into its first recession since 2009. The penalties have locked Russian corporate borrowers out of international debt markets, spurred capital flight and weakened the country's currency, which lost about half of its value last year before rebounding in 2015.

"Our base case assumes that the sanctions on Russia will remain in place over the forecast horizon, absent a resolution of the conflict in Ukraine," S&P said in a statement.

The rouble, which has rallied the most in the world this year, weakened after the S&P decision. It traded down 5.1 per cent at 52.3350 versus the dollar at 7:04 pm in Moscow.

Fitch Ratings, which has the last investment-grade rating on Russia, delayed a decision on the nation's rating to examine the economic and financial situation more deeply, Finance Minister Anton Siluanov told reporters in Washington on Friday after meeting with Fitch.

Fitch Comment Alyssa Castelli, a spokeswoman for Fitch in New York, didn't immediately return a phone call and e-mail seeking comment.

Regarding S&P's latest action, Siluanov said there are no reasons to say that Russia is in a "non-investment-grade zone," though there won't be a quick return to an investment- grade rating.

Authorities in Moscow predict capital outflows of US$90 billion this year, down from a record US$154 billion estimated for 2014. The central bank sees economy contracting as much as 4 percent this year after a 0.6 per cent expansion in 2014.

A cease-fire in eastern Ukraine and oil prices that have stabilized above US$55 a barrel have helped improve investor sentiment toward Russia. Even so, the ruble remains about 32 per cent weaker over the past 12 months.

Russia said on Wednesday it may return to foreign borrowing next year, reversing earlier plans to avoid international markets until 2017.

"The outlook remains negative, reflecting our view that we could downgrade Russia if external and fiscal buffers deteriorate over the next 12 months faster than we currently expect," S&P said. "We could also lower the ratings if Russia's monetary policy flexibility were to diminish further."

BLOOMBERG