The status is now Ba1/Not Prime, Moody's said after a recent review of the country's risk indicators.
Before the downgrade, Russian debt was rated Baa3/Prime 3.
Economic risks are "biased to the downside", Moody's said.
"The likelihood of a further shock to confidence, with associated capital outflows and damage to investment and consumption intentions, seems greater than that of a return of confidence and a cessation of capital outflows or a material resumption of inflows.
"The continuing crisis in Ukraine and the recent oil price and exchange rate shocks will further undermine Russia's economic strength and medium-term growth prospects, despite the fiscal and monetary policy responses."
The ratings agency also pointed to the rising potential for default on existing debt obligations.
"The risk is rising, although still very low, that the international response to the military conflict in Ukraine triggers a decision by the Russian authorities that directly or indirectly undermines timely payments on external debt service."
Russia's foreign currency reserves, which stood at $330bn at the end of 2014, are expected to decline by "more than half" this year, the ratings agency added.
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