A cashier demonstrates Russian rouble banknotes taken from a cash register at a local grocery store in Stavropol, southern Russia
A cashier demonstrates Russian rouble banknotes taken from a cash register at a local grocery store in Stavropol, southern Russia, January 7, 2015. Many emerging market currencies weakened on Wednesday, weighed down by oil prices hitting fresh lows, with Russian assets feeling most of the pain. South Africa's rand, Turkey's lira, and the Russian rouble all traded lower against the dollar, after oil prices fell below $50 barrel for the first time since 2009. REUTERS/Eduard Korniyenko Reuters/Eduard Korniyenko

Fitch rating agency has downgraded Russia's long-term foreign and local currency Issuer Default Ratings (IDR) to "BBB-" from "BBB." The rating downgrade also applies to unsecured foreign and local currency bonds. The downgrade comes at a time when the country is facing problems with falling oil prices and a depreciating currency.

According to a report by the Fitch rating agency, the economic situation in Russia has deteriorated since mid-2014. Russia is one of the major oil exporting countries outside of the OPEC. Oil prices that were at over in July 2014 are currently trading at just over Russian economy has also been affected by the economic sanctions imposed by the U.S. and the European Union.

The Russian central bank sharply increased the interest rates to arrest the depreciating rouble and guard against inflationary risks in the economy. The Fitch report has also taken into account the risk of the interest-rate increase on the country's economy.

According to the report, the volatility in the country's currency market and the increase in the interest rate are having an impact on the country's banking sector. The economic sanctions have led to the corporate sector in the country being denied access to the international capital markets. The report notes the government's efforts to stabilise the banking sector by offering loans from the National Wealth Fund.

The Fitch report assumes an optimistic outlook of the oil prices at over According to the report a prolonged period of lower than assumed oil price may lead to a deeper recession in Russia and limit the government's ability to take measures to remedy the situation.

The Fitch rating agency expects that the per capita income of Russia will "shrink by over one quarter one third in 2015." Inflation that was at 11.4 percent year-on-year by the end of 2014 is expected to remain in the double digits in the first quarter of 2015. According to the report, the rate of inflation is expected to be at 8.5 percent by the end of 2015.

Some of the positive attributes of the Russian economy noted in the Fitch report are that the country's policy framework is "robust" and the country's public debt is low. In terms of the risk, the report notes that measures taken by the country's central bank of the country's finance ministry to support the depreciating rouble may lead to further erosion of the country's Sovereign Wealth Funds and affect its ratings.

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