In March 2014, the US Dollar would buy you 35 Russian Roubles, at close of play yesterday, the same Dollar would buy you nearly 68.4 Roubles meaning that the value of the Rouble has nearly halved in just ten months. The major reason underlying the fall of the Russian currency is almost certainly the declining oil price which has seen the price of Brent crude plummet from $106.7 to $48.8 per barrel currently. Add Western sanctions over the annexation of Crimea and interference in the Ukraine (as Western powers see it) and it should come as no surprise that Standard and Poor’s have cut their rating on Russian credit. S & P’s decision to downgrade Russia’s credit rating by one notch to BB+ which is below their investment grade rating, relegating it to junk status.
Commenting on their decision, an S & P’s statement notes: “Russia’s monetary-policy flexibility has become more limited and its economic growth prospects have weakened. We… see a heightened risk that external and fiscal buffers will deteriorate due to rising external pressures and increased government support to the economy.”
The other two major ratings agencies, Moody’s and Fitch’s, both have Russia’s credit worthiness rated at one notch above junk. It is expected that the Russian economy will contract by at least 4% over the course of 2015.
Russian stocks and bonds declined on news of the S & P decision. The Rouble has fallen by more than 17% so far since just before Christmas. To an extent, the S & P move had been anticipated and priced in by investors, but should the other ratings agencies follow suit (or the oil price heads lower), further weakness is to be expected.