Fitch affirmed Russia’s long-term foreign and local currency rating at BBB- and preserved the positive outlook, according to a press announcement from Friday, following a scheduled rating review. The move was expected, in view of the renewed focus on sanction risks last week, although before that there were suggestions that Fitch may upgrade Russia by one notch. We remind that Fitch was the only agency that preserved Russia at investment grade after the annexation of Crimea and since then Russia’s position has undoubtedly improved by a large margin, thus an upgrade would be logical. This is reflected in the preservation of the positive outlook, in our view, and an upgrade later this year remains on the agenda unless new US sanctions prove really damaging.
The agency noted that the current rating balances very strong fiscal and external accounts, combined with credible macroeconomic policy framework, with remaining problems of commodity dependence, low growth prospects, weak governance and geopolitical risks. This is very similar to the view taken also by Moody’s and S&P in their latest rating decisions. According to Fitch, additional US sanctions are likely, but Russia would withstand sanctions on new sovereign debt despite an increase in funding costs. Sanctions that affect Russia’s sovereign debt servicing or prevent Russian banks from transacting in US dollars are seen as unlikely.