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News // Russia

Russia Downgraded by S&P

24 October 2008 , 08:51Ksenia Kochneva553
Standard & Poor's Ratings Services changed Russian ratings after it had become known that Russian gold and foreign exchange reserves fell by $15 billion in the latest week.

It's not surpising consider that rating agencies see Russia's reserves as a key factor behind its investment-grade debt rating.

At the same time, the 'BBB+' long-term foreign currency and the 'A-' long-term local currency ratings by S&P were affirmed, as were the short-term ratings of 'A-2'. In addition, Russia's Transfer and Convertibility (T&C) assessment was lowered to 'BBB+' from 'A-'.

"The outlook revision reflects the likelihood of a downgrade if costs to the Russian government of the bank rescue operations continue to increase," S&P credit analyst Frank Gill said.

As reserves dwindle, the cost of insuring sovereign Russian debt against restructuring or default hit record highs, with the debt now classified as distressed.

Russia runs a managed float of the ruble, and officials have pledged to support the currency as long as it is needed. Amid falling prices for oil, however, analysts question the sustainability of this policy.

Falling Russian shares also put pressure on the ruble as an emerging markets sell-off engulfed Russian equity markets.

Investors dumped Russian paper, driving the value of shares in Sberbank down nearly 10 percent before the MICEX exchange suspended them.

The Central Bank decided Thursday to further cut the limit on currency-swap operations, used by speculators to bet on the currency's depreciation, setting Thursday's limit at 15 billion rubles.

The Central Bank calculated that with the average price of oil at $66 per barrel in 2009 the reserves will fall while the current account will run a deficit.

"Russia's challenge could be greater
depending on how quickly its terms of trade decline against a weakening
external backdrop. The negative outlook also reflects the increasing
possibility that the budget moves into deficit in 2009, which would reverse
the previous steady decline in the government's debt burden,"- Mr. Gill said.

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