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Capital markets

Russia debt close to 'junk' status as S&P cuts rating

International ratings agency Standard & Poor’s has lowered Russia’s creditworthiness for the first time in five years. The analysts fear sanctions over the Ukraine crisis will lead to capital flight and risk investment.

Russia's debt rating cut

Russia's debt rating had been cut from BBB to BBB-, international ratings agency Standard & Poor's (S&P) announced Friday.

The downgrade means that investments in Russian sovereign debt is only one rating cut away from speculative grade, also known as 'junk bond' status.

The first ratings cut for Russia since 2008 was caused by Moscow's policy toward Ukraine, resulting in the annexation of the Crimean peninsula in March. The move has triggered US and EU sanctions against Russia which are threatening to escalate as the crisis worsens.

"The tense situation could see additional significant outflows of both domestic and foreign capital from the Russian economy," said in a statement.

Between January and March 2014, investors pulled out an estimated $70 billion (50.6 billion euros) from the Russian economy. It contributed to a slowdown in the country's first-quarter growth to just 0.8 percent, significantly lower than predicted last year. The downgrade means that Moscow will have to pay higher borrowing costs in international capital markets.

Mounting speculation that Russia could face even stiffer sanctions is set to aggravate the situation. On Friday, an official in the US administration indicated that President Barack Obama was likely to call on European leaders to discuss the possibility of further bans against Moscow. So far, the US and the EU have only imposed travel and financial restrictions on prominent Russian individuals.

uhe/kms (AP, dpa)

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