Moody's Investors Service downgraded Russia's ratings deeper into “junk”, or non-investment grade territory, for the <a href="https://www.spglobal.com/ratings/en/research/articles/220226-research-update-russia-foreign-currency-rating-lowered-to-bb-and-put-on-creditwatch-negative-on-risks-rel-12291923">second time</a> in two weeks and expects the country's economy to shrink 7 per cent this year due to mounting pressure on its finances. The country's long-term issuer and senior unsecured debt ratings were cut to Ca from B3 on Sunday with a negative outlook, the rating agency said. The latest downgrade follows the slashing of the Russia ratings on February 25. Moody's said its decision was prompted by the Central Bank of Russia's capital control measures put in place following sanctions imposed on the country by the US, Europe and other countries in response to Russia's military offensive in Ukraine. Moscow's capital control measures are likely to restrict cross border payments including debt service on government bonds, the rating agency said. The ratings downgrade signals a country is undergoing financial instability or may not have adequate cash reserves relative to its needs and financial obligations, which makes it speculative and considered a high credit risk. That will make it difficult for Russia and Russian companies to raise funding globally. “The downgrade to Ca is hence driven by severe concerns around Russia's willingness and ability to pay its debt obligations,” the rating agency said. “Moody's view is that the risk of a default occurring has significantly increased and that the likely recovery for investors will be in line with the historical average, commensurate with a Ca rating.” Recovery expectations are at 35 per cent to 65 per cent at a Ca rating, it said. Sanctions against Russia's central bank will “severely restrict” its access to international reserves to support its currency and financial system, the<a href="https://www.thenationalnews.com/business/2022/03/06/russia-ukraine-conflict-to-have-severe-impact-on-global-economy-imf/" target="_blank"> International Monetary Fund</a> said on Saturday. The central bank more than doubled the key interest rate to 20 per cent to try to shield the $1.5 trillion economy and a currency that fell to a record low. Russia's rouble has plummeted more than 61 per cent since the start of the year from about 75 to about 121 to the US dollar. International sanctions on Russia’s banking system and the exclusion of a number of banks from global payments system Swift have “significantly disrupted” the country’s ability to receive payments for exports, pay for imports and make cross-border financial transactions, says the Washington-based lender. Russia's negative outlook reflects “the significant risks” to its macro-economic stability posed by the imposition of severe and co-ordinated sanctions following Russia's military offensive in Ukraine, the financial ramifications from delays to sovereign debt repayments and banking and corporate sector stress that are likely to have negative reverberations for macro stability, Moody's said. “Concerns around the government's willingness to pay and the unpredictability of government actions could result in larger than historical average losses for investors,” it said. On Thursday, <a href="https://www.thenationalnews.com/business/economy/2022/03/04/sp-downgrades-russia-ratings-deeper-into-junk-for-second-time-in-a-week/">S&P Global Ratings</a> downgraded <a href="https://www.thenationalnews.com/business/economy/2022/03/04/sp-downgrades-russia-ratings-deeper-into-junk-for-second-time-in-a-week/">Russia</a>'s ratings eight notches to CCC-. It was the second time in a week, after it had <a href="https://www.spglobal.com/ratings/en/research/articles/220303-research-update-russia-ratings-lowered-to-ccc-and-kept-on-creditwatch-negative-on-increasing-risk-of-defa-12299557">downgraded</a> it to BB+. It also placed Russia's sovereign ratings on negative watch, which means a further downgrade is possible and S&P could lower them again in the next few weeks. <a href="https://www.thenationalnews.com/business/2022/03/03/fitch-and-moodys-downgrade-russia-to-junk-as-sanctions-bite-economy/">Fitch and Moody's previously </a>downgraded Russia's sovereign credit rating six notches to non-investment grade status due to the wave of US and EU sanctions. “Restrictions on some Russian banks' access to the financial messaging system Swift, coupled with the direct sanctioning of large state-owned banks and the CBR will effectively block these institutions from participating in the global financial system and make it exceptionally difficult for them to engage in international transactions,” Moody's said. “Given compliance risks, non-Russian institutions will be very reluctant to deal with sanctioned and likely also non-sanctioned entities within Russia. These restrictions on Russia's ability to execute its sovereign debt payments compound already significant concerns around Russia's willingness to service its debt,” it said. Sanctions are likely to disrupt Russia's economy and financial sector in the long term, with the economy contracting 7 per cent this year and further in 2023, the rating agency said. The depreciation of Russia's rouble will have “severe economic consequences” and lead to higher inflation and lower living standards. Russia is the world's second largest energy exporter and inflows of foreign currency from the export of oil and gas may cushion the impact of the sanctions, but the country faces the likelihood of “sustained economic disruption and increased susceptibility to shocks”, Moody's said.