Moody's Cuts Russia's Rating to 'Baa2' from 'Baa1'

Politics Reuters

Moody's Investors Service cut Russia's sovereign debt rating to 'Baa2' from 'Baa1', becoming the second ratings agency to cut the country's ratings this year, after S&P initiated a downgrade in April.

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Moody's said the prolonged crisis in Ukraine was weighing on Russia's medium-term growth prospects.

"The military confrontation in Ukraine and escalating sanctions against Russia are likely to have an increasingly negative macroeconomic impact on Russia's investment climate," the ratings agency said on Friday. (http://bit.ly/1oeQfO6)

The agency maintained its negative outlook on Russia.

Moody's cited the ongoing erosion of Russia's foreign exchange buffers due to low oil prices and Russian borrowers' restricted access to international markets as key drivers for the downgrade.

Russia's high dependence on the hydrocarbon sector has not materially decreased despite its government's diversification strategies and is likely to limit the economy's potential for growth, Moody's said.

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The agency expects real growth to start declining by the end of the year and continue falling at least until mid-2015.

Moody's also lowered Russia's long-term country ceilings for local and foreign currency debt and for local currency deposits to 'A3' from 'A2'.

(Reporting by Sudarshan Varadhan in Bangalore; Editing by Kirti Pandey and Simon Jennings)