Russian shares fell after S&P cut Russia's sovereign credit rating to junk status, bringing it below investment grade for the first time in a decade. As Katie Gregory reports the ratings agency warned of difficult times ahead for Russia's economy.
Russia's economy has been in the wars for a while... but now it's credit rating is officially classed as "junk". It's certainly not the most attractive of terms - but the market was ready. It took Standard and Poor's downgrade in its stride but Kerry Craig from JP Morgan says the other two rating agencies may follow. (SOUNDBITE) (English) KERRY CRAIG, GLOBAL MARKETS STRATEGIST, JP MORGAN, SAYING: "If they do start to downgrade that's when you see asset managers and other fund managers perhaps having to start to re-allocate where they have to move away back into investment grade assets and away from Russia potentially, that's where more market volatility could come in." The downgrade means Russia's credit rating is below investment grade for the first time in a decade. Investors not already put off by the crisis could be now, banks and large corporations will have trouble refinancing themselves - and there will most likely be a rise in borrowing costs. The already struggling rouble took an early hit on the news - but it was shielded by Russian exporters, who - at the government's request - sold off foreign currency. (SOUNDBITE) (English) KERRY CRAIG, GLOBAL MARKETS STRATEGIST, JP MORGAN, SAYING: "Foreign exchange reserves are being run down very quickly and if the economy does fall into recession further this year, then you will see those reserves being dried up very quickly, and that's when you'll see extra concerns about the strength of the Russian economy." With the price of oil still falling - and the conflict in Ukraine continuing... Standard & Poor's sees difficult times ahead. "We also see a heightened risk that external and fiscal buffers will deteriorate due to rising external pressures and increased government support to the economy." Grigory Birg is an oil and gas analyst in Moscow. (SOUNDBITE) (English) OIL AND GAS ANALYST AT INVESTCAFE, GRIGORY BIRG, SAYING: "The main problem is the uncertainty of how to deal with this current situation, because it is a sort of a perfect storm, with high double digit inflation, already high interest rates, Russia being shut out of the international capital markets, all the while the commodity prices are dropping." Just hours after the downgrade, Russia announced an "anti-crisis" plan... it will freeze the level of spending in order to return the budget to surplus by 2017. But for now the oil powerhouse and the world's largest energy exporter - will remain in the same credit rating class as Bulgaria and Indonesia.