Russia plans budget cuts as oil slump, sanctions bite

14 Jan 2015 | Author: | No comments yet »

Ruble Falls 4th Day on Oil as Russia Concedes Junk Rating Likely.

The ruble weakened for a fourth day as Russia’s economy minister acknowledged the government risks losing its investment-grade rating amid a slump in oil that is tipping the economy into a recession. The ruble trimmed a drop of as much as 2 percent after Finance Minister Anton Siluanov said Russia could convert as much as 500 billion rubles ($7.58 billion) of its $88 billion rainy-day Reserve Fund to support the currency, which he called “undervalued.” Government bonds and stocks climbed.

Oil’s 60 percent collapse from last year’s high is pushing the economy toward recession after U.S. and European Union sanctions over Ukraine shuttered foreign debt markets for Russian companies. Standard & Poor’s is reviewing Russia’s credit score and there’s a “fairly high” risk it will cut the world’s biggest energy exporter to a non-investment grade, Economy Minister Alexei Ulyukayev said at a conference in Moscow today. “Expectations S&P might cut Russia to below investment grade have triggered a negative investor reaction to ruble assets,” Andrey Verkholantsev, head of research at Kapital Asset Management LLC in Moscow, said by phone. “Oil has fallen a lot and the ruble can’t resist such pressure.” Russian assets have come under renewed pressure this year as Fitch Ratings last week knocked the sovereign’s credit rating to one level above investment grade. The yield on five-year local-currency bonds, known as OFZs, fell 12 basis points to 17.52 percent, paring the year-to-date increase to 211 basis points. “If S&P cuts, they may have to close their positions, sell OFZ bonds, convert the rubles they receive into dollars and take them out of the country,” he said in e-mailed comments. Brent crude, which contributes about 50 percent of Russia’s state revenue together with natural gas, slid 0.4 percent to $46.40 a barrel, the lowest since March 2009.

To contact the reporters on this story: Vladimir Kuznetsov in Moscow at vkuznetsov2@bloomberg.net; Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

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