Standard & Poor's (S&P) has cut Russia’s credit rating to junk level, putting it below investment grade for the first time in a decade.
The international ratings agency announced on January 26 that it had lowered its rating for Russian government debt to BB+ from BBB-.
It added a negative outlook on the rating, saying, "The downgrade reflects our view that Russia's monetary policy flexibility has become more limited and its economic growth prospects have weakened."
The ratings agency last downgraded Russia in April.
Earlier this month, Fitch Ratings cut Russia’s credit rating to BBB- and added a negative outlook on the rating.
The Moody's rating agency also cut Russia's credit to one level above junk earlier this month and warned, "The severe -- and likely to be sustained -- oil price shock, alongside Russian borrowers' highly restricted international market access due to ongoing sanctions, is undermining economic fundamentals and increasing financial stresses on both the public and private sector."
The world’s biggest energy exporter is on the brink of a recession after crude prices fell to their lowest level since 2009 and the West imposed sanctions following Russia’s annexation of Crimea in March, curbing investor appetite for the ruble.
Russian Finance Minister Anton Siluanov said the S&P decision "shows the excessive pessimism of the agency."
Siluanov claimed the ratings downgrade "fails to consider a series of factors which characterize the strong side of the Russian economy: the accumulation of large international reserves, including in the sovereign funds."
The move by S&P will increase Russia's borrowing costs since many mainstream investment and pension funds have rules prohibiting them from buying anything not classified as investment grade.
But Siluanov said there was no reason for foreign investors to worry about their shares in Russian companies and enterprises.
"We see no reason to dramatize the situation," the Russian finance minister said.
However, the Russian ruble dropped in value after the S&P announcement.
TASS reported late on January 26 that the ruble had dropped from 64.23 to $1 before the S&P announcement to 69.29 to $1 as of 10 p.m. Moscow time.
Russian President Vladimir Putin met with cabinet members before the S&P announcement and said the government needed to focus on cutting spending, keeping inflation under control, and ensuring Russia does not waste its hard currency reserves.
With reporting by AFP, AP, TASS, and bloomberg.com