Moody's upgrades outlook on Russia's sovereign rating

Moody's upgrades outlook on Russia's sovereign rating

Moody's rating agency has changed the outlook on Russia's Ba1 long-term issuer and senior unsecured debt ratings to positive from stable. Moody's also affirmed Russia's long-term ratings at ‘Ba1’, the agency said in a press release.

The agency said that "growing evidence of institutional strength" and "increased evidence of economic and fiscal resiliency" were the key factors of the change in the outlook.

"Russia's macroeconomic framework coped well with the oil price shock and with the impact of sanctions imposed to date, and enhancements have been made to the government's rule-based fiscal framework," the press release reads.

According to Moody's, the rating "appropriately balances Russia's fiscal strength, somewhat improved economic prospects and effective policy-making against the combination of longer-term economic challenges and continued nearer-term exposure to external events."

In addition, Moody's raised Russia's country ceilings for foreign currency debt to ‘Baa3/P-3’ from ‘Ba1/ NP’ "to reflect diminished concerns that the government might impose capital controls or otherwise ration foreign exchange reserves." The rating agency also raised the country risk ceilings for local currency-denominated debt and deposits to ‘Baa2’ from ‘Baa3’, while the country ceilings for foreign currency deposits remain at ‘Ba2/NP’.

"Russia's medium-term macroeconomic perspective is also better than forecast a year ago when Moody's changed the rating outlook to stable from negative," the agency added.

CEO of the Russian Direct Investment Fund Kirill Dmitriev said that the country’s economy deserves a higher rating and that Moody’s rating upgrade witnesses a rising investor interest.

"A positive outlook reflects Russia’s economy recovery, the macroeconomic stability and a rising interest of investors in local assets. Oil price stabilization stemming from an OPEC+ deal and a reasonable monetary policy to stabilize inflation were among other important factors," he said.

The Chairman of the Board of the National Currency Association (NCA), Dmitry Piskulov, speaking with Vestnik Kavkaza, noted that the rating agency's decision was influenced by Russia's economic growth. "In addition, we see rising oil prices, which improve the state budget positions and reduce the state's dependence on external debt and new borrowings. Despite the fact that our Ministry of Finance adheres to a conservative oil price forecast, the oil markets show opportunities for further growth, which may lead to an additional strengthening of the ruble," he pointed out.

"In addition, there is a percentage difference between interest rates in rubles and in dollars or euros, and it is profitable for foreigners to invest in Russia, despite all foreign policy noise. Therefore, I think Moody's correctly assesses the outlook for Russia's economic growth, not least because of the political stability in the country. The improvement in the forecast will show foreign investors that the Russian economy is moving in the right direction. That is, it is a significant positive signal for large investments in Russia," Dmitry Piskulov stressed.

The professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, indicated the same reasons. "Many economic and macroeconomic indicators in Russia have improved, the recession has been replaced by weak economic growth. The budget deficit indicators have improved. Russia's gold and foreign currency reserves increased slightly, the ruble strengthened, inflation declined. The whole macroeconomics shows that the financial situation in Russia is getting better - that's why Moody's has taken such a step," he explained.

At the same time, the economist does not expect a big effect from this event. "Unfortunately, the effect of sectoral sanctions and nervous Russia-US relations continue to restrict external borrowing by Russian business. The idea is that the main effect of this rating upgrade is a reduction in the cost of external borrowing, but it is rather uncommon practice for Russia now and will not have a strong effect," Alexander Abramov concluded.

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