S&P, which last downgraded Russia in April, cut the sovereign one step to BB+, according to a statement. The grade, which is on par with Bulgaria and Indonesia, has a negative outlook.
The world's biggest energy exporter is on the brink of a recession after oil prices fell to the lowest since 2009 and the U.S. and its allies imposed sanctions over President Vladimir Putin's actions in Ukraine. The penalties have locked Russian corporate borrowers out of international debt markets and curbed investor appetite for the ruble, stocks and bonds.
"Russia's monetary policy flexibility has become more limited and its economic growth prospects have weakened," S&P said in a statement. "We also see a heightened risk that external and fiscal buffers will deteriorate due to rising external pressures and increased government support to the economy."
The ruble, the world's second-worst performer last year after a 46 percent plunge against the dollar, plummeted after the S&P decision and was trading 4.7 percent weaker at 67.4 versus the U.S. currency at 9:16 p.m. in Moscow.
A cut to below investment grade could force ratings-sensitive investors to sell their remaining debt holdings.
Policymakers are struggling to contain the country's worst currency crisis since 1998. The central bank shifted to a free-floating exchange rate ahead of schedule in November and is overseeing a 1 trillion-ruble ($15 billion) bank recapitalization plan. On Dec. 16, the central bank took its biggest step to shore up the currency, raising its key interest rate to 17 percent from 10.5 percent in a surprise move just before 1 a.m. in Moscow that day.
Fitch Ratings downgraded Russia to its lowest investment grade this month.
The S&P move "reflects a combination of lower oil prices, sanctions and the conflict in Ukraine with the difficult geopolitical tussle with the West which shows no sign of easing," Tim Ash, chief emerging-markets economist at Standard Bank Group Ltd. in London, said by e-mail. "These factors have and are expected to continue to weigh on Russia's balance sheet and overall credit matrix. I would expect Fitch and Moody's to follow relatively soon."