Amongst the ratings agencies, Fitch is the one with the biggest coverage of Russian issues. They've announced they're stopping rating them completely.
The simplest interpretation of this is that most investment finance is barred from buying things that are unrated. So Russia (the government) and Russians (firms and people) won't be able to borrow money as easily.
I wonder whether or not that will make a difference to their economy. It's not like anyone is lining up to loan them money now.
But there's a bigger and subtler issue.
When an institution wants to borrow they sell a bond to a buyer. The payment for the bond is the loan. But that's just the first seller and first buyer. The bond is a security and can be resold. So the first buyer becomes the second seller of that security, and goes and finds a second buyer. All of those sales from the second on are called seasoned.
On the surface, Fitch's move will help shut down initial offerings, but at the deeper level, it will also shut down the sale of seasoned Russian securities too, since most institutions can't buy unrated bonds.
The macroeconomic consequence of that is that institutions make themselves more liquid by selling bonds they own (which, by definition, are all seasoned). So Fitch's move blocks conversion to liquidity of part of the portfolio of many institutional investors. So where will they get liquidity? By selling more of the bonds of other countries. To sell them they will need to drop their price, pushing up interest rates for (new borrowing) for those countries. In essence, it will be an external creation of more contractionary monetary policy. That will be met with an intentional and internal expansionary policy in those countries ... encouraging inflation there.
Great. Juuuust great.
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