Moody's holds Russia's sovereign bond rating at Baa1, cuts outlook to 'negative'

The review of Russia's government bond rating that Moody's Investors Service started two months ago amid the escalation of the Ukrainian crisis has ended up in a compromise solution: the rating outlook has been cut to 'negative' but the rating itself has been held at Baa1 level, although there were some signs back in March that it could be downgraded by one or even two levels.

Moody's reported on March 28 that Russia's Baa1 rating was put on review with the prospect of being downgraded because of the weakening economy and growing geopolitical risks. The agency said then that, if it decided to downgrade the rating, the most likely scenario would be its lowering by one level. It warned, however, that, if there were signs that the current events could cause serious turmoil, Russia's rating could be lowered by more than one level as well.

The agency said it could hold Russia's sovereign rating if the tension was alleviated or an anti-crisis decision was made capable of improving the prospects of the country's economic growth.

Moody's announced the review results early on Saturday. The downgrading of the outlook to 'negative' reflects the Russian economy's increasing "susceptibility to geo-political event risk" and the weakening medium-term economic growth outlook. The agency said it did not downgrade the rating itself taking into account Russia's "strong fiscal and external accounts," which it said it did not expect "to be materially affected by the current geo-political tensions related to the Ukraine and the lower GDP growth trajectory projected in the coming years."

Moody's said Russia's annual growth outlook for the period from 2014 to 2018 has fallen to 1.7%.

The agency said also that, in the event of the Ukraine crisis' further escalation or continued deterioration of the domestic growth outlook, it could again consider downgrading Russia's rating.

If the situation surrounding Ukraine and Russia's macroeconomic condition develop positively, Moody's suggested it could change the outlook to 'stable'.

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