Sanctions depress Russia's rating by "at least one notch" - Fitch

MOSCOW, Sept 24 (Reuters) - Western sanctions constrain Russia’s credit rating and hamper its efforts to achieve higher rates of economic growth, global rating agency Fitch said on Tuesday.

Fitch lifted Russia’s investment-grade rating in August to ‘BBB’ from ‘BBB-‘, citing a strengthened policy mix and robust fiscal and external balance sheets.

But economic and financial sanctions that the West has gradually imposed on Russia since 2014 to punish it for the annexation of Ukraine’s Crimea peninsula and other “malign activities” represent headwinds for Russia’s growth and rating prospects.

“These sanctions subtract at least one notch from Russia’s rating, as predicted by our sovereign rating model,” Erich Arispe, Senior Director of Fitch Ratings Sovereign Group, told Reuters in Moscow.

Russian officials say the sanctions are unlawful and deny any wrongdoing in Ukraine or elsewhere.

“We believe that sanctions are going to remain and are going to continue to constrain Russia’s credit profile from the economic side,” Arispe said.

“As sovereign debt has already been targeted ... further sanctions on this cannot be discounted.”

The United States last slapped sanctions on Russia in August by banning U.S. banks from buying sovereign Eurobonds directly from Russia to punish Moscow for the poisoning of a former Russian double agent, Sergei Skripal, and his daughter, Yulia, in Britain last year.

Arispe said sanctions were viewed as a long-term factor and an element of Russia’s credit profile.

Rated as BBB, which is two notches above junk territory, Russia is now on a par with countries such as Hungary, Italy and Mexico.

While public finances and external finances are “significantly stronger” in Russia, which has more than $500 billion in state reserves, than in other countries with BBB ratings, growth remains Russia’s weak point, Arispe said.

“This represents the main policy challenge from our perspective: How to increase growth prospects without undermining improvements in terms of macroeconomic stability,” Arispe said.

The Russian central bank has projected economic growth at around 1% in 2019, down from 2.3% seen in 2018.

In 2020 and 2021, economic growth in Russia is likely to accelerate to 1.9%, which is below a median growth rate of 3% in countries rated BBB, Arispe said. (Reporting by Andrey Ostroukh Editing by Gareth Jones)