Moody`s confirms Russia`s Ba1 sovereign rating, outlook negative

Saturday, April 23, 2016 - 16:52 (EEST) Section: Latest news

Moody`s Investors Service on Friday confirmed Russia`s Ba1 government bond and issuer ratings, concluding the review for downgrade that was initiated on March 4, 2016, and assigned a negative rating outlook.
The driver for Moody`s decision to confirm Russia`s current Ba1 rating relates to the economy`s demonstrated resilience to the renewed drop in oil prices, which has been facilitated by exchange rate flexibility and the authorities` additional fiscal adjustments. The new oil price fall did not add lasting headwinds to the economy, inflation or financial stability, with growth taking only a brief and quite mild additional hit. While the ruble initially depreciated by around 15% in January when oil prices dropped, it has since strengthened in line with the subsequent recovery in oil prices and declining inflation, leading to limited economic disruption, Moody`s said.
Another sign of the economy`s resilience is that inflation continued to fall despite the temporary fall in the exchange rate. Year-on-year inflation subsided to 7.3% in March – compared to 12.9% at the end of 2015 – mainly owing to base effects from the same period of 2015. We expect end-year inflation to be around the same level, assuming relative stability in the exchange rate and the maintenance of tight monetary policy, and to decline further in 2017 to about 5% by the end of 2017. The central bank has demonstrated its commitment to containing inflation, keeping its policy rate at 11% since last July to anchor inflation expectations, and we expect any loosening to be gradual in light of still-high inflation expectations.
The negative outlook reflects the likely further erosion of the government`s fiscal savings in the context of Moody`s medium-term projections for oil prices. Moreover, a set of policies that would address the economy`s low growth potential has been slow to emerge, while the election calendar over the next two years will likely interfere with the implementation of politically unpopular reforms that could achieve a more fundamental budget consolidation.