Moody’s Downgrades Russia’s Government Bond Rating to Baa3

© AP Photo / Mark LennihanMoody's Investors Service said Tuesday it had downgraded to Baa2 from Baa1 the foreign currency rating of Russia's energy giant
Moody's Investors Service said Tuesday it had downgraded to Baa2 from Baa1 the foreign currency rating of Russia's energy giant - Sputnik International
Moody’s agency says that it downgraded the government bond rating for Russia from Baa3 to Baa2.

MOSCOW, January 17 (Sputnik) – Moody's has downgraded the government bond rating for Russia from Baa3 to Baa2, the agency has said in a statement, adding that it expects the country's GDB to contract by 5.5 percent this year and by 3 percent in 2016.

In a Friday press release the agency says the first reason behind the downgrade is "Moody's expectation that the substantial oil price and exchange rate shock will further undermine the country's [Russia's] already subdued growth prospects over the medium term".

The second factor behind Moody's decision is "nearer-term concerns over the negative impact on the [Russian] government's financial strength of the erosion in official foreign exchange buffers and fiscal revenues".

Moody's Corporation - Sputnik International
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According to Moody's the "severe oil price shock" and the sanctions that the West has been imposing against Russia over its alleged involvement in the Ukrainian crisis could lead to "contractions of around 5.5% in 2015 and 3% in 2016, bringing real growth over the 10 years through 2018 to virtually zero".

Moody's Russian government bond rating is now on review for further downgrade, however, the Friday press release says that "limited upward pressure is likely in the next 12-18 months", so the Baa2 rating could be brought back to Baa3 in the near future.

Russia's economy is currently suffering from the sharp decline in global oil prices, given that the country's budget is largely dependent on energy exports. The fall in prices was triggered by the decision by the Organization of the Petroleum Exporting Countries' (OPEC) not to cut oil production.

The Russian ruble has recently plummeted to historic lows. The strong dollar and weak Rouble are also said to be the result of Western sanctions imposed against Russia.

Meanwhile, Russian President Vladimir Putin announced in December that the Russian economy would recover in the next few years. According to a forecast by the European Commission, inflation in Russia may drop to six percent as early as in 2016.

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