Russia's finance ministry said on Friday it had hired the US banking major J.P. Morgan as a consultant for helping improve its image with the world's three main ratings agencies amid worries of an imminent downgrade. The announcement came days after Deputy Finance Minister Sergei Storchak confirmed that one of the ratings giants had sent a team to Moscow with a view of reviewing its grade for Russia's credit.
Storchak never spelled out whether this review intended to raise or lower Russia's investment outlook. But the markets are concerned that the revision will be made to the downside owing to rapidly slowing economic growth and inflation that has outpaced expectations.
Russia's First Deputy Prime Minister Igor Shuvalov essentially confirmed that Moscow was trying to avoid a sovereign ratings downgrade in comments earlier this week. "We have been warning experts and the ratings agencies about certain negative consequences in view of slow rates of economic growth," Shuvalov told Russian media on Thursday. "We have no additional signs (of an economic) slowdown." Russia's growth outlook has already been slashed to 2.4 percent of gross domestic product from 3.6 percent while inflation has consistently stood at more than seven percent.
This double-edge sword has paralysed the central bank - unable to stimulate growth through lower interest rates because of the inflation risk - and sparked speculation among analysts for a need for urgent fiscal measures. "The continued weakness of Russia's economy has led to questions about what policymakers can do to stimulate growth and, with the central bank reluctant to loosen monetary policy, there is a growing likelihood that the government will turn to fiscal measures to revive the economy," the London-based Capital Economics consultancy said in a research note.
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