• Moody’s cuts Russia’s foreign currency long-term debt rating

  • We cannot rule out the possibility of further sovereign ratings being cut to junk levels

  • We remain bearish on the outlook for the rouble


Assessment and outlook

Moody’s cut Russia’s foreign currency long-term debt rating on Friday, 17 October 2014 from ‘Baa1’ to ‘Baa2’ while keeping the country’s outlook on negative, stating that Russia’s economic prospects are weak and sanctions are weighing on the country’s FX reserves. ‘Baa2’ is the second lowest investment grade level.

As Russia’s capital outflows accelerated in Q1 14 and the central bank initiated overly tight monetary policy in order to support the rouble’s exchange rate, Standard & Poor’s cut the country’s sovereign rating on 25 April 2014 to ‘BBB-’ with a negative outlook, citing that geopolitical risks had risen on a deteriorating situation around Ukraine. Since that, we have argued that a risk of new sovereign ratings cut is possible due to continuing capital outflows, tightening monetary policy and accelerating consumer price inflation on a quickly devaluating rouble and Russia’s food imports ban, introduced in summer 2014 as counter-sanctions against Australia, Canada, the EU, Norway and the US.

In the current situation where the oil price has fallen 18.5% since mid-August 2014, we do not exclude the possibility of further sovereign ratings being cut to junk levels as prospects for economic growth in 2014-15 have deteriorated. Thus, we see additional downside risks for our 2015 GDP forecast of -1.8% y/y as fixed investments will stagnate on rising cost of capital and tightening monetary policy. On the other hand, we expect private consumption to shrink in 2015 as both supply and demand side shocks will keep inflation elevated.

We remain bearish on the RUB and OFZ sovereign bonds, expecting spiking short-term volatility as demand for RUB on tax payments during the last weeks of October 2014 will be pressured by a low oil price and worsening sentiment.

This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD recovers further toward 0.6800 on risk-recovery

AUD/USD recovers further toward 0.6800 on risk-recovery

AUD/USD extends recovery toward 0.6800 in Asian trading on Thursday, despite mixed Australian employment data. The Aussie cheers a return of risk appetite, which weighs on the post-Fed US Dollar recovery. All eyes now remain on US economic data for fresh impetus. 

AUD/USD News
USD.JPY reverses sharply from 144.00, as US Dollar recovery fizzles

USD.JPY reverses sharply from 144.00, as US Dollar recovery fizzles

USD/JPY is attacking 143.00 in Thursday's Asian session, reversing sharply from 144.00. The pair pares back gains in tandem with the US Dollar, as the latter's post-Fed recovery falters due to a rebound in risk sentiment. The focus is next on the US data due later today and Friday's BoJ decision. 

USD/JPY News
Gold price regains positive traction amid a modest USD pullback from one-week high

Gold price regains positive traction amid a modest USD pullback from one-week high

Gold price attracts some dip-buying during the Asian session on Thursday and seems to have stalled its retracement slide from the $2,600 mark, or a fresh all-time peak touched the previous day. The US dollar trims a part of its intraday gains to a one-week high, which turns out to be a key factor lending support to the commodity.

Gold News
Crypto leaders and Congress blast SEC over crypto regulations

Crypto leaders and Congress blast SEC over crypto regulations

In a meeting on Wednesday, several crypto leaders and congress members debunked the Securities and Exchange Commission's harsh regulatory approach toward the crypto industry.

Read more
Australian Unemployment Rate expected to hold steady at 4.2% in August

Australian Unemployment Rate expected to hold steady at 4.2% in August

The Australian Bureau of Statistics will release the monthly employment report at 1:30 GMT on Thursday. The country is expected to have added 25K new positions in August, while the Unemployment Rate is foreseen to remain steady at 4.2%.

Read more
Moneta Markets review 2024: All you need to know

Moneta Markets review 2024: All you need to know

VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.

Read More

Majors

Cryptocurrencies

Signatures