Moody’s upgraded Russia back to Baa3 from Ba1 and changed the outlook to stable from positive, according to a press release from Friday evening. The decision is not surprising in view of the improved macroeconomic stability and now all three rating agencies rate Russia at investment grade. The deputy PM and FinMin Siluanov welcomed the upgrade, saying it was a fair decision although it came too late. The agency said the upgrade reflects reduced vulnerability to external shocks, including new US sanctions, as a result of macroeconomic policies that further strengthened Russia’s credit profile and external position. According to Moody’s, there is a “reasonably high likelihood” of further US sanctions, including a ban on US persons buying/holding Russian sovereign debt and debt of other state-related entities.
Russia’s rating may be upgraded further, but it will likely require evidence of structural reforms, apart from further improvement in the country’s credit profile and external position, the agency said. A downgrade can come because of worsening macroeconomic balances or harder-than-expected sanctions. In our view, the upgrade by Moody’s was long expected and it should not have a major market impact, although the return to investment grade by all three agencies is a positive for Russia.