Fitch Ratings revised the outlook on Russia's long-term foreign and local currency Issuer Default Rating (IDR) to Positive from Stable, while affirming the rating at 'BBB-', the agency said on September 22.

In the summer Russian government had set an ambitious short-term growth goal of over 2% growth, improved the fiscal outlook, and was hoping that Fitch and Standard & Poor's would upgrade the rating.

"Russia continues to make progress in strengthening its policy framework underpinned by a more flexible exchange rate, strong commitment to inflation targeting and a prudent fiscal strategy, reflected in the recently approved budget rule," Fitch commented.

The agency expects this policy mix to improve macroeconomic stability and, together with still robust external and fiscal balance sheets, increases the economy's resilience to shocks.

Fitch is the only "big three" agency that rates Russia at investment grade after the 2014-2015 crisis, albeit keeping the rating only one notch above the speculative "junk" category.

On September 15 S&P affirmed the 'BB+' foreign currency credit on Russia, while keeping the outlooks on the rating at Positive. The agency singled out Russia's banking sector as a weak spot, still ridden by over 20% of bad debt and limiting the ability of the Central Bank of Russia (CBR) to transmit monetary policy. 

"Fitch considers that risks from the banking system for the sovereign balance sheet currently appear limited," the latest rating commentary said on the issue. The agency noted that the CBR's take-over of Financial Corporation Otkritie, one of 10 banks then categorised as systemic, "prevented contagion and financial markets instability".

Nevertheless, Fitch reiterated its previous report noting that this particular intervention is an "important test of the authorities' ability to continue cleaning up the banking system and strengthen the resolution framework while maintaining confidence in the financial sector". 

Overall Fitch expects the central bank to remain focused on achieving a sustainably low level of inflation through a prudent easing cycle, strengthening transmission mechanisms, cementing institutional credibility and sustainably anchoring expectations. 

Inflation is seen above CBR's target of 4% at 4.5% in 2018-2019, which is "an unprecedented level of low inflation for Russia, albeit still above the 2.1% 'BBB' median". 

The main rating strength of Russia remains the government debt being among the lowest in the BBB category, with federal government debt forecast to increase to 13.4% of GDP in 2017. 

While fiscal buffers remain low compared with other oil producers with similar ratings, Fitch expects the government to increase fiscal reserves moderately in 2018 and 2019.

The agency is supporting Russia's growth goal seen by many analysts as ambitious, almost matching the Ministry of Economic Development forecast of 2% GDP gain in 2017 and 2.1% in 2018-2019.

The growth will be helped by reduced uncertainty, easing of monetary policy supporting credit recovery, RUB stability and a benign oil price outlook. The agency does not expect to see a broader reform agenda that could help achieve a higher growth trajectory before the 2018 presidential elections.

The main factors that could undermine the rating and downgrade the outlook to Stable are a possible rise in geopolitical tensions or imposition of additional sanctions, a weakening of the policy framework that undermines macroeconomic and fiscal performance, and a sustained decline in international reserves.