Russia credit rating cut amid Ukraine crisis

MOSCOW — Russia felt the impact of the Ukrainian crisis on its economy on Friday, when ratings agency Standard &Poor’s cut its credit grade for the first time in five years and the central bank raised interest rates to keep the sliding currency from fueling inflation.

S&P said in a statement it dropped Russia’s rating to one level above “junk status” because the tense situation over Ukraine was causing investors to pull money out of the country.

Russia, it warned, “could see additional significant outflows of both domestic and foreign capital from the Russian economy.” S&P said it is keeping a negative outlook, meaning it could downgrade the country again if economic conditions worsen.

Credit ratings are important for the economy because they determine how expensive it will be for a country or company to borrow on international markets and eventually determine how much consumers will be paying for their loans.

As Russia does not borrow much on international bond markets, the impact on its public financing costs is likely to be limited. Russia had 4.4 trillion rubles, or $123 billion, in outstanding government bonds as of April 1. But the downgrade amounts to a warning on the risks of investing in the country and the low grade is surprising for a government that has very low levels of public debt.

Economic indicators have been pointing to problems in Russia’s economy.

Investors spooked by the possibility of Western sanctions on Russia’s economic interests pulled about $70 billion out of the country in the first three months of the year — more than in all of 2013. Economic growth slowed to 0.8 percent during that period, sharply worse than earlier forecast while.

And the currency slumped, hitting records lows against the dollar. On Friday, it was down 0.7 percent at 36.03 rubles per dollar. The ruble’s weakness, in turn, has been pushing inflation up in Russia as a lower currency makes imports more expensive.

The Russian Central Bank sought to fight that trend by increasing its main interest rate, the one-week auction rate, by 0.5 percentage points to 7.5 percent on Friday.

The bank, which had already hiked its rate sharply in March from 5.5 percent, said in a statement it aimed to keep the inflation rate under 6 percent this year and does not expect to cut the rate back in the coming months.

The interest rate increase is a double-edged sword — it could help stabilize the currency by attracting foreign investors in search of higher returns, but will also tend to hurt economic growth by making loans more expensive.

Russian Economic Development Minister Alexei Ulyukayev dismissed the S&P ratings cut from BBB to BBB- as “partly politically motivated.”

Moscow in March recognized a hastily called referendum in Ukraine’s Black Sea peninsula of Crimea and annexed it weeks later, attracting condemnation of the West as well as sanctions targeting individuals. Secretary of State John Kerry on Thursday warned Moscow that unless it took immediate steps to de-escalate the situation, Washington would impose additional sanctions.

Russia’s MICEX benchmark was 0.8 percent down in later afternoon trading on Friday as the markets have been declining for five days in a row.

More in Herald Business Journal

Snohomish County’s campaign to land the 797 takes off

Executive Dave Somers announced the formation of a task force to urge Boeing to build the plane here.

A decade after the recession, pain and fear linger

No matter how good things are now, it’s impossible to forget how the collapse affected people.

Panel: Motorcycle industry in deep trouble and needs help

They have failed to increase sales by making new riders out of women, minorities and millennials.

Costco rises as results display big-box retailer’s resiliency

Their model has worked in the face of heightened competition from online, brick-and-mortar peers.

For modern women, 98-year-old rejection letters still sting

In a stark new video, female Boeing engineers break the silence about past inopportunity.

Tax reform needs the public’s input on spending priorities

The GOP tax plan is a good idea, but the next step should give us a voice on how taxes are spent.

Commentary: GM, Boeing fight a war of words over Mars

Boeing is strongly signaling how crucial deep-space exploration is to its future.

Under cloud of ethics probes, Airbus CEO Enders to step down

He leaves in 2019 after 14 years. Meanwhile, aircraft division CEO Fabrice Bregier leaves in February.

$4.99 sandwich promotion irks some Subway business owners

Management insists that “most franchisees support the promotion.”

Most Read