Credit rating agency Fitch followed industry leader Standard & Poor’s in reducing Russia’s sovereign debt rating from stable to negative earlier today, March 21st. The downgrades are occurring at the end of a week that has seen a referendum in Crimea, a Russian annexation of the former Ukrainian peninsula and travel and economic sanctions slapped on Russian government officials and oligarchs.

Russia

Both credit agencies kept Russia’s credit rating at BBB, the second-lowest investment grade, the same rating as Brazil, South Africa and Italy. The rating agencies cited “heightened geopolitical risk” due to Russian President Putin’s annexation of Crimea and the possibility of accelerated capital flight that would further weaken the economy.

Analyst comments

A number of analysts have been expecting the credit agencies to make this move soon given the invasion of Ukraine and the U.S. and Europe applying an initial round of economic sanctions. “Russia’s economy is already running out of steam,” Ian Hague, founding partner of New York-based Firebird, which manages $1.3 billion of assets including Russian stocks, said by phone yesterday. “With everything happening, it’s clear that costs of capital are going up. It puts stress on the government’s budget because of lower growth.”

U.S. and European sanctions on Russia

In addition to a first round of sanctions announced by the U.S. and EU late last week, European Union put 12 additional names onto their list of those officials and leaders hit with sanctions. Yesterday, U.S. President Barack Obama put financial sanctions in place against another group of Russian officials and billionaires allied with Putin.

Germany’s Chancellor Angela Merkel has been particularly vocal in her criticisms of Russia’s actions in Ukraine, and both the EU and the U.S. have threatened additional sanctions in response to further Russian aggressions in Ukraine.