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Rating agencies take time to examine turn for better in Russian economy

April 18, 2015, 6:27 UTC+3 WASHINGTON

First, S&P said it would keep Russia’s sovereign rating at BB+, and short while later Fitch declared it would refrain from revising its rating, too, Russian Finance Minister Anton Siluanov told

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WASHINGTON, April 18. /TASS/. The Big Three credit rating agencies - Standard&Poor’s, Fitch and Moody’s - have taken time to examine the latest favorable changes in the Russian economy. For the time being they have refrained from taking any further action regarding the rating parameters. First, S&P said it would keep Russia’s sovereign rating at BB+, and short while later Fitch declared it would refrain from revising its rating, too, Russian Finance Minister Anton Siluanov told the media.

Both credit rating agencies were to reconsider Russia’s sovereign credit ratings on April 17.

A source in the Russian delegation has told TASS, Siluanov, currently on a visit in Washington, held a meeting with Fitch, the sole of the Big Three members to have refrained from downgrading Russia’s rating to a non-investment level. Also, Russian Finance Ministry officials held a meeting with S&P. A rendezvous with Moody’s is due on Saturday.

Siluanov confirmed the very instance of such meetings.

"We have met with all rating agencies. I personally met with Fitch. They will not revise their rating for the time being. They said they have postponed a discussion of the situation in Russia. They will study the economic and finance situation more closely," he said.

At the end of January S&P downgraded Russia’s rating from the investment level BBB-to speculative BB+. Moody’s did so in February.

Bad forecasts haven’t materialized

The Big Three will now spend a while gauging positive trends in the Russian economy: the firming of the rouble, lower inflation and stabilization of the financial sector. The previous commentary that accompanied Moody’s downward revision of Russia’s rating mentioned the risk of capital flight, estimated at $272 billion (in contrast to the Bank of Russia’s official forecast of $110 billion), the shrinkage of sovereign funds to zero, a 22% percent inflation and the state debt’s climb to 20% of the GDP. Russia’s former finance minister, Aleksei Kudrin, then dismissed the forecasts as "unexplainable" and government officials said they were "politically motivated."

Russia’s Deputy Finance Minister Maksim Oreshkin told the media in Washington such a forecast had placed Moody’s in a very precarious position. "Rating agencies, in particular, some of them, have found themselves in a rather awkward situation. Moody’s, for instance. Now it has to carry on with the forecast it made of its own accord. Mind you, it was the basic scenario, and not the pessimistic one," Oreshkin said. "The events have followed a fundamentally different course."

As follows from January-March statistics, there are no pre-requisites for that February scenario to come true, and the situation in the economy is getting better. Capital flight totaled 32 billion dollars, and annual inflation was running at 16.9%.

Earlier, Siluanov, too, said Moody’s scenario was anything but realistic. "The prerequisites that Moody’s decision to downgrade the rating was based on have obviously failed to be confirmed.

Oreshkin said that at such meetings with rating agencies the Ministry of Finance "provides the required detailed information" regarding the economic development and its own forecasts. It is up to the agencies to make a final decision, though. The Russian side has no say at all.

Ratings upgrade outlook

Although the economic situation is returning to stability, no hope for the rating’s quick return to the investment level is anywhere near in sight. The agencies will take time to see if the current trend is stable enough.

"Fast pullback to the investment rating is unlikely to happen," said Siluanov, adding that the "positive trends that there exist in the economy will require time to confirm."

Even though objective reasons for a "trash" rating just do not exist.

"We believe that we are in a situation where there is no reason to say we are in the non-investment zone," he said.

Decisions by rating agencies are important to Russia, because they impact foreign investors’ opinions of the corporate sector. Yet, even with the two "trash" ratings (from the S&P and Moody’s) the Russian delegation in Washington drew enough attention from investors, including US ones. To have a meeting with them Siluanov even had to revise his working schedule somewhat, a source close to the Russian delegation has told TASS. Originally, the Russian Finance Minister was to attend the opening session of the International Monetary and Financial Committee.

"We have received quite a few requests for such a meeting," Siluanov’s aide, Svetlana Nikitina explained earlier. She remarked that there was to be a meeting "with investors who are interested in cooperation with Russia," but avoided mentioning any countries. Deputy Finance Minister Oreshkin said two dozen investors came to the meeting. All represented funds with long records of operation on the Russian market.

Despite the ratings’ downgrade in January and February "the past two months saw a major surge in investor interest," he said.

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