Moscow gets junk rating by Moody's

Moody's expects Russia to suffer a deep recession this year with little improvement next year. Photo / AP

Moody's has cut Russia's debt rating by one notch into "junk" territory, saying the Ukraine crisis and the fall in oil prices and the ruble will further undermine Russia's economy.

Just over one month since its last downgrade of Moscow's credit rating, Moody's said Russia "is expected to experience a deep recession in 2015 and a continued contraction in 2016".

"The decline in confidence is likely to constrain domestic demand and exacerbate the Russian economy's already chronic underinvestment," it warned.

Moody's cut the rating on the country's bonds by one step to Ba1, "speculative" or junk grade. Previously it was Baa3. The move also came after Standard & Poor's invoked Moscow's ire on January 26 by cutting its rating for the country to junk level.

Moody's said the Government's fiscal strength "will diminish materially" in the face of continuing capital flight, further lowering the country's access to international capital markets.

Moody's also said that, although low for the moment, the risk is rising that the Government could respond to international pressure over its role in the Ukraine crisis by deciding to slow payments on its foreign debt.

Moody's also attached to its rating a negative outlook, suggesting the country faces potentially another downgrade in the coming months. "It seems more likely that Russia will face additional sanctions than that current sanctions are lifted in the coming months. The associated economic risks are also biased to the downside," it said.

The downgrade followed a week of fighting in Ukraine that appeared to undermine a brand-new truce.

The United States has delivered some of its harshest criticism yet, accusing Moscow of undermining the global order by supporting the rebels.

"We call upon Russia to honour its commitments immediately with decisive action before we see ... more lives lost in eastern Ukraine," said State Department spokeswoman Jen Psaki.

- AAP