Russia’s credit rating downgraded to ‘junk’ status

Russia’s credit rating has been downgraded to ‘junk’ after the West imposed a barrage of economic sanctions over the war in Ukraine.

Two major rating firms said the punishments inflicted on Moscow had weakened its economy and thrown into doubt its ability to service debt.

‘The severity of international sanctions in response to Russia’s military invasion of Ukraine has heightened macro-financial stability risks, represents a huge shock to Russia’s credit fundamentals and could undermine its willingness to service government debt,’ Fitch said in a statement.

Moody’s Investors Service also downgraded Russia to junk, meaning three of the world’s top rating agencies have no confidence in its credit rating, after S&P made the same assessment last week.

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Russia’s financial markets have been thrown into turmoil by sanctions imposed over its invasion of Ukraine, the biggest attack on a European state since World War Two.

The UK, US, EU and more than two dozen other nations have retaliated with economic measures that have sent the Russian rouble tumbling, cut major Russian banks from the global financial system and hurt state-owned firms and oligarchs, including President Vladimir Putin himself.

Key Russian banks have also been barred from the SWIFT international payments system, preventing them from secure international communication and isolating them from much of the global financial system.

The sanctions aim to throw Russia and its people into a deep recession, crippling Putin’s ability to finance his war machine.

For several days, long lines have formed near ATMs around Russia as people rush to withdraw cash amid fears of a breakdown in electronic banking.

The value of the rouble has plummeted to a record low, sending the price of goods soaring, and many banks are no longer dolling out Euros or dollars.

French Finance Minister Bruno Le Maire said on Tuesday that the aim of the latest round of sanctions was to ’cause the collapse of the Russian economy.’

For the latest updates on the Russia-Ukraine war, visit our live blog: Russia-Ukraine live

Swedish economist Anders Aslund suggested this might be achieved. He tweeted on Wednesday that the Western sanctions effectively ‘took down Russian finances in one day’.

‘The situation is likely to become worse than in 1998 because now there is no positive end. All Russia’s capital markets appear to be wiped out & they are unlikely to return with anything less than profound reforms,’ he added.

Policymakers are expected to continue tightening sanctions, for example by adding more kinds of technology and new companies to blacklists.

In the UK, Prime Minister Boris Johnson is being pressed to go faster in targeting Russian oligarchs, after it was conceded it could take ‘weeks and months’ to build legally-sound cases.

Downing Street said on Thursday it would consider possible changes to speed up the process as ministers sought to apply pressure on Putin, who has ramped up his bombing campaign.

Senior Tory MP Tom Tugendhat called for the UK to follow in the footsteps of European nations which have seized assets of wealthy Russians such as luxury yachts and property.

‘We should be looking immediately to seize those assets linked to those who are profiting from Putin’s war machine, holding it in trust and returning it to the Russian people as soon as possible,’ he said.

There have been questions over why billionaires such as Roman Abramovich, who has announced he will sell Chelsea FC, have not been hit with sanctions.

A government source acknowledged it could take ‘weeks and months’ to build a legally watertight case against some Russian oligarchs. They told the PA news agency: ‘We’re working round the clock and going as quick as we can.’

Downing Street sought to downplay the issue, with the prime minister’s official spokesman insisting: ‘We are not being held back from introducing sanctions.’

He also sought to argue that sanctions on the banks funding the Russian president’s military machine will exert more pressure than going after his wealthy allies.

‘Our judgment is placing sanctions particularly on large banks and companies … that is what we believe will exert the most pressure on Putin’s regime and will throttle off funding for this illegal war against Ukraine.’