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Russia's credit rating is cut to junk by S&P

Moscow, currency board Image copyright Reuters

Russia’s credit rating has been cut to junk – or below investment grade – by US ratings agency Standard and Poor’s for the first time in a decade.

S&P gave Russia a rating of BB+, which puts it at the same level as Indonesia and Bulgaria.

This makes it harder for Russia to borrow money from investors.

“Russia’s monetary-policy flexibility has become more limited and its economic growth prospects have weakened,” S&P said in a statement.

“We… see a heightened risk that external and fiscal buffers will deteriorate due to rising external pressures and increased government support to the economy,” it added.

Russia’s economy has been in free fall since the middle of last year, when plummeting oil prices cut the income for its oil industry and the unrest in Ukraine led to international sanctions.

Oil prices have plunged over 50% since the middle of last year, to $45 a barrel, which has been particularly difficult for Russia, which expected prices to stay near $100 per barrel in 2015.

Russia’s economy is expected to contract by 4% to 5% this year.

‘Excessive pessimism’

Russia’s Finance minister Anton Siluanov said the S&P’s move indicated “excessive pessimism” on the part of the rating agency.

Mr Siluanov added: “The decision shouldn’t have a further serious impact on the capital market because market participants already priced in the risks of a downgrade to Russia’s credit rating.”

However, the ruble dropped even further against the dollar in the wake of the announcement, falling 7.5% in late trading in Moscow.

The currency has depreciated over 40% against the dollar in the past year.

S&P last downgraded Russia in April, but warned of impending action in late December.

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