Fitch downgrades Russia’s credit rating to ‘junk’, says defaults ‘imminent’

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On March 16, Russia must pay $107 million in coupons on two bonds

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Fitch Ratings on Wednesday downgraded Russia’s credit to “C,” or junk status, and said a default was imminent as Western economic sanctions and trade restrictions undermine the government’s resolve to repay its debts.

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In recent days, the two other dominant international credit agencies, Moody’s and S&P Global, have also warned that Russia is nearing “imminent” default as sanctions choke off its access to dollars and other global currencies to repay lenders. .

The junk downgrades are signals for investors to steer clear of Russia, lest they invest money in assets that are losing value every day.

Russian President Vladimir Putin has said the country could force a redeployment of foreign currency sovereign debt payments into rubles for creditors in some countries.

Fitch further said of Putin’s executive order: “Increased sanctions and proposals that could limit energy trade increase the likelihood of a policy response from Russia that includes at least selective non-payment. of its sovereign debt obligations”.

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On March 16, Russia must pay $107 million in coupons on two bonds, although it has a 30-day grace period to make the payments.

The next full “principal” repayment is a $359 million bond to 2030 on March 31, then a larger $2 billion maturity on April 4.

Western energy sanctions — President Joe Biden said on Tuesday the United States would stop importing Russian fossil fuels and the European Union said it would cut its consumption by two-thirds this year — in response to the invasion of Ukraine by Putin also serve to starve the Russian economy. new income. That means even injections of rubles into its national economy could be hard to come by.

“If the currency dips, it means by definition that the country does not have the capacity to repay its debts denominated in dollars. He just doesn’t have the dollars,” said Chris Rupkey, chief economist at market research firm FWD Bonds. “Currency does not buy anything if it is worth nothing.”

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After its invasion of Ukraine, Russia became the most sanctioned nation in the world, according to the global database Castellum.ai, eclipsing the high total of sanctions imposed on Iran, North Korea and China. Syria. Moscow faces 5,532 sanctions from the United States, the European Union, Japan and even historically neutral Switzerland.

Russia’s central bank announced this week that it is banning citizens from using rubles to buy US dollars and other hard currencies for the next six months as it tries to keep the value of the ruble from falling further. The central bank will also limit the amount of US dollars customers can withdraw from hard currency accounts at Russian banks to $10,000, she said.

The measures are designed to prevent the Russians from making a run on dollars as the ruble falls to new lows under Western sanctions, which have limited the central bank’s access to its massive hard currency reserves.

With additional reporting from The Washington Post

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