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Ratings agency Moody's has cut Russia’s credit rating one notch to Baa2, the second-lowest investment grade, with a negative outlook, citing sluggish growth prospects. 

Moody's also pointed to the fall in Russia’s hard currency reserves after the central bank spent more than $50bn this year defending the currency. Reserves are also under pressure because of the ongoing capital flight which is expected to top $100bn this year. 

Falling oil prices, down 20% this year, and borrowers’ lack of access to international capital markets were also contributing factors. 

The economy will expand 0.3% in 2014, the worst performance since output shrank in 2009, according to analysts surveyed by Bloomberg.

“The military confrontation in Ukraine and escalating sanctions against Russia are likely to have an increasingly negative macroeconomic impact on Russia’s investment climate and consequently on its medium-term growth prospects,” Moody’s said in a report.

Tim Ash of Standard bank said in a note: “Pretty much expected, given that Moody's original Baa1 rating was generous compared to Fitch at BBB and S&P at BBB-. Obviously Russia's credit profile is deteriorating as a result of weak growth, sanctions, lower oil prices, and heightened geopolitical concerns. 

“I guess a bigger threat will be if S&P moves to remove the [investment grade] rating, which still seems unlikely at this stage, and after they already moved back in April. 

Russia does still benefit from modest debt ratios, and a weight of FX reserves.”