Rating agency Fitch downgrades
Russia is “imminently facing default”
3/9/2022 3:14 am
The rating agency Fitch pushes its rating for the creditworthiness of Russia even deeper into the junk area. The credit rating will be reduced by six levels to “C” from the previous “B”. Russia’s first default since 1998 is imminent.
The US rating agency Fitch has again downgraded Russia’s credit rating. The agency rated the risk that Russia could no longer repay its national debt as “imminent” on Wednesday night and lowered the rating from “B” to “C”. Fitch justified the new assessment with “developments that have further undermined Russia’s willingness to repay the national debt”.
Should the rating agency’s warning come true, it would be Russia’s first default since 1998. The major rating agencies had already lowered Russia’s credit rating to junk levels at the beginning of March. The lower the rating, the less trust the country has from lenders and the less it can borrow money at cheap interest rates.
Fitch justified his decision with a presidential decree signed last weekend that could allow Russia to pay creditors of certain countries in rubles instead of foreign currency. The list of countries includes the countries of the European Union, Australia, Great Britain, Canada, South Korea, Switzerland, Japan and the USA, among others. The agency also mentioned a decision by the Central Bank of Russia to restrict transfers of certain bonds to non-Russian residents.
“More generally, the tightening of sanctions and proposals that could restrict energy trade increase the likelihood of a policy response from Russia that will include at least a selective default on its sovereign debt,” Fitch said.
The rating agency thus referred to the US import ban on oil and gas from Russia announced on Tuesday. Great Britain had also announced that it would phase out energy imports from Russia. Russia had warned that extending sanctions to the energy sector would have “catastrophic consequences”.
The West had already imposed tough financial sanctions on Russia for its war of aggression in Ukraine and blocked the Russian central bank from accessing most of its huge foreign exchange reserves abroad. Russia has also been banned from the Swift payment system, making money transfers more difficult.
On Tuesday evening, Russia’s central bank suspended foreign exchange trading in Russia until September 9 in a bid to curb the ruble’s extreme devaluation and capital flight from the country. Also, cash withdrawals from foreign currency accounts at Russian banks have been limited to $10,000. However, foreign currencies can still be exchanged for rubles.
The ruble hit a new all-time low against western currencies on Monday. The Russian currency has lost more than 45 percent of its value since the beginning of the year.