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02.07.2008 - MDM Comment: Chances for Russia to get into A-league in 2008 have diminished
Fitch has today affirmed Russia's sovereign rating at BBB+ Stable. While Fitch acknowledges Russia's macro and fiscal strength, it sites economic overheating, inflationary risks and structural weaknesses as important constraints.
Without commenting on the fairness of this decision, we believe it is important to note that the announcement reduces the probability of Russia moving into the ‘A’ rating category this year. Sovereign ratings are usually revised once a year, so it would be unusual to see Fitch making such an important upgrade less than 6 months after its rating affirmation, particularly with a Stable outlook.
Moody's has kept Russia at Baa2, but on review for a possible upgrade. We doubt that in the current environment Moody's will dare award Russia a two notch upgrade, so we believe the rating will only be raised to Baa1.
Standard & Poor's is now the closest of the big three ratings agencies to taking Russia into the A-league, as it rates the Federal Government at BBB+ with a "Positive" outlook (the outlook was changed from "Stable" in March of this year). However, given the historically conservative and often overly harsh approach S&P has taken toward Russia, we doubt that it will risk being the most aggressive of the big three.
We would be happy to be proved wrong on this matter.
