Europe News

S&P downgrades Russia's sovereign credit rating to below investment grade

Sasha Mordovets | Getty Images

Standard & Poor's on Monday downgraded Russia's sovereign credit rating to below investment grade, as the country's economy continues to weaken.

S&P slashed Russia's sovereign credit rating to BB+ from BBB- and said the outlook is negative, reflecting its view that Russia's monetary policy flexibility could diminish further.

This is the first time in more than 10 years that Russian sovereign debt has been rated below investment grade, in what some call "junk" territory.

Read MoreRuble hit as Obama slams Russia 'bullying'

The U.S. dollar rose more than 5 percent against the ruble after the news broke.

It could not only harm Russia's image among investors, but also push up its borrowing costs, as many mainstream investment and pension funds have rules preventing them from buying anything not classed as investment grade.

The ratings agency said Russia's financial system is weakening and therefore limiting the Central Bank of Russia's (CBR's) ability to transmit monetary policy.

It sees the CBR facing "increasingly difficult monetary policy decisions while also trying to support sustainable GDP growth."

S&P said it could cut the rating again if "external and fiscal buffers deteriorate over the next 12 months" faster than it expects.

--Reuters contributed to this report.