MOSCOW: Russia’s ruble was down 1.5 percent against the dollar in response to sliding oil prices and a downgrade to “junk” status of its sovereign debt by Moody’s.
The global rating agency announced after trading in Moscow finished that it expected Russia to experience a “deep recession” this year and continued economic contraction in 2016.
The Russian currency lost almost a percent against the euro while Moscow’s two main stock exchanges had both shed more than 1.5 percent.
Traders attributed the declines to both the rating cut and a drop in recent days in the global price for Russia’s vital oil exports.
Moody’s downgrade came slightly less than a month after an identical one by Standard & Poor’s.
Most major Western funds are forbidden from holding debt stripped of its investment-grade status by two of the world’s three main rating agencies.
Russia’s Finance Minister Anton Siluanov immediately denounced the Moody’s cut as “political” and economically unjustified.
And his deputy even suggested Tuesday that Russia might break off its cooperation with the agencies in protest.
“There is no reason to continue maintaining our contractual relations,” news agencies quoted Deputy Finance Minister Sergei Storchak as saying.
“We should take a pause.”
Some Moscow-based economists said Russia had reasons to be upset.
VTB Capital said Moody’s decision was based on the exaggerated assumption that Russia’s net capital outflows — estimated at around $150 billion last year — would nearly double to $270 billion in 2015.
“Given $50-60 billion external debt redemptions, Moody’s appears to assume more than $200 billion of domestic capital outflow,” VTB Capital said in a research note.
“This seems extreme, as it would be more than 80 percent of local currency term-deposits in the banking system.”
Siluanov also argued on Friday that Moody’s prediction of the inflation rate reaching 22 percent this year was overly pessimistic.
