Standard & Poor's cut its foreign and local currency rating on Russia, as capital continues to flow out of the country amid heightened tensions with the West, risking Russia's growth prospects.
Later on Friday morning, Russia's central bank raised its key interest rate from 7 percent to 7.5 percent in a scheduled meeting, citing rouble weakness and high inflation risks.
The bank said the move would enable it to lower inflation to 6 percent by the end of 2014 and added it did not plan on cutting rates in coming months.
S&P downgraded Friday Russia's foreign currency rating to one notch above "junk" status to 'BBB-/A-3' from 'BBB/A-2', as well as cutting local currency local-currency long-term rating to 'BBB' from 'BBB+'.
"In our view, the tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects," the ratings agency said, warning that further downgrades were possible if the West imposes tighter sanctions against Moscow.
Russian shares, which have traded lower this week, fell further following the downgrade, with the MICEX stock index slipping over 1.6 percent.The rouble, which has lost nearly 8 percent against the dollar this year was trading 0.3 percent lower against the U.S. currency and 0.4 percent lower against the euro.