Standard & Poors Cuts Russia To Junk, Ruble Plunges and Russia reacts

With the Ruble having plunged 3 handles today alone, it appears perhaps more than a few could see this coming...

• RUSSIAN FEDERATION RATINGS CUT TO JUNK BY S&P
• RUSSIAN FEDERATION CUT TO BB+ FROM BBB- BY S&P; OUTLOOK NEG

Putting it below investment grade for the first time in a decade. Of course, this happens just 6 days after the news first leaked that S&P would pay a $1.5 billion settlement to the US DoJ over downgrading America: one wonders just what else was in the small print?

The downgrade comes on a day when The Russia Agriculcural Bank failed to sell 10Y bonds into the market. Russian stocks (ADRs) and the Ruble continue to slide on this news.

Russia Foreign Currency Ratings Lowered To ‘BB+/B'; Outlook Negative

OVERVIEW

• In our view, the Russian Federation’s monetary policy flexibility has weakened, as have its economic growth prospects. 
• We are therefore lowering our foreign currency sovereign credit ratings on Russia to ‘BB+/B’ from ‘BBB-/A-3' and our local currency sovereign credit ratings to ‘BBB-/A-3' from ‘BBB/A-2'.
• At the same time, we removed these ratings from CreditWatch, where they were placed with negative implications on Dec. 23, 2014.
• The outlook is negative, reflecting our view that Russia’s monetary policy flexibility could diminish further. We could lower the ratings if external and fiscal buffers deteriorate over the next 12 months faster than we currently expect.

As a “sovereign rating” (as defined in EU CRA Regulation 1060/2009 “EU CRA Regulation”), the ratings on the Russian Federation are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see “Calendar Of 2015 EMEA Sovereign, Regional, And Local Government Rating Publication Dates,” published Dec. 30, 2014, on RatingsDirect). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation.

In this case, the reason for the deviation is a significant change in our perception of Russia’s monetary flexibility over the 2015-2018 forecast horizon and the effect we expect Russia’s weakening economy to have on its financial system. As a result, we have revised downward our expectations on key macroeconomic indicators.

The next rating publication on Russia is scheduled for April 17, 2015, according to our calendar.

Russian reaction

Well that didn't take long. Russian Finance Minister Siluanov has responded to S&P's "junk" downgrade of The Russian Federation:

• *SILUANOV: S&P DOWNGRADE OF RUSSIA SHOWS 'EXCESSIVE PESSIMISM'
• *SILUANOV: NO REASON TO EXPECT `MASS' DEBT REDEMPTION REQUESTS

Adding in his statement that he "sees no reason to dramatize" the situation, Siluanov adds that the cut should not have any serious effect on Russia's capital markets. We assume by "dramatize," he means - they wil not be 'visiting' the local ratings agencies offices for a chat anytime soon.

Credit to Zero Hedge