The outlook on Russia's junk credit rating was raised by S&P; Global Ratings with the end in sight for the nation's longest recession in two decades.

S&P; lifted the outlook to stable from negative, maintaining its foreign-currency rating of BB+, one step short of investment grade and on par with Bulgaria and Indonesia. Moody's Investors Service also has Russia at that level, while Fitch Ratings has the country at its lowest investment rating.

Having been slammed by plunging oil prices, the world's largest energy exporter is eyeing the end of an economic contraction that began at the start of 2015. While gross domestic product will probably shrink 0.2 per cent this year, it will advance 0.8 per cent in 2017, the Economy Ministry predicts. Even so, the government is running its widest budget deficit since 2010 and recession-induced spending is draining billions of dollars of fiscal buffers.

"We expect a return to positive real GDP growth in 2017-2019 averaging 1.6 per cent," S&P; said Friday in a statement. "We also expect that, despite fiscal pressures, Russia will maintain a comparatively low net general government debt burden in 2016-2019 and that the country will continue to maintain its strong net external asset position."

Having lost 20 per cent against the US dollar in 2015 as oil prices tumbled, the rouble has gained 13 per cent this year, the second-best performance behind Brazil's real among 24 emerging-market peers tracked by Bloomberg. The currency pared losses after S&P;'s announcement, leaving it 0.3 per cent weaker at 64.98 per dollar at 7pm in Moscow.

S&P;'s move was the first positive action by credit assessors since 2010 and shows Russia's economy has adapted to new conditions, Finance Minister Anton Siluanov told reporters in Moscow. He predicted an eventual return to investment grade as the government strengthens public finances.

While fiscal pressures will remain, S&P; forecasts Russia's budget shortfall to average about 3.3 per cent of GDP in 2016-2019, "falling steadily" on government consolidation plans from 4.1 per cent this year. The ratings company assumes an average Brent oil price of $US40 a barrel in 2016, rising to $US45 next year and $US50 in 2018, improving the oil industry's prospects. It called Russia's "modest" overall government debt position a rating strength.

"The stable outlook reflects our expectation that the Russian economy and policy making will continue to adjust to the relatively low oil price environment while keeping its external and fiscal metrics in check," S&P; said in its statement.

Inflation, which has taken precedence over the shrinking economy for the central bank, will remain elevated, according to S&P.; Consumer prices will grow 7 per cent this year before averaging about 5 per cent in 2017-2019, it said. That compares with an official target of 4 per cent for next year.

Russian bonds headed for their biggest weekly decline in two months after the Bank of Russia said its 50 basis-point rate cut on Friday is the last of the year because any more risks rekindling inflation.

The yield on Russia's February 2027 bonds climbed 10 basis points to 8.22 per cent after policy makers dashed hopes that today's interest-rate reduction would be the first of a series this year, extending their weekly gain to 13 basis points, the most since the period ending July 22. 

"We'll see a panic in OFZs now, the selloff might last a couple of weeks," said Andres Vallejo, an investor at National Asset Management Co. JSC in Moscow. "This was basically a verbal intervention on behalf of the central bank to cool off the bond market." Vallejo said when the yield on 2027 bonds jumps to 8.3 per cent, it'll be a good time to buy again.

The Bank of Russia reduced its benchmark to 10 per cent from 10.5 per cent, according to a statement on Friday. Thirty-seven of 42 economists surveyed by Bloomberg predicted the move. Policy makers said that for inflation to continue slowing, "the current value of the key rate needs to be maintained until end-2016".

Goldman Sachs placed its forecast for rates and its neutral bond view on hold following the rate decision, saying the central bank had been "signficantly more explicit" than expected.

"In terms of asset prices, the decision supports our stance of being supportive on the rouble, while it challenges our neutral view on the bonds market towards a downward correction at least in parts of the curve," Goldman Sachs analysts Clemens Grafe and Andrew Matheny said in an emailed note.