S&P Downgrades Brazil To BBB Minus

Standard & Poor’s cut Brazil’s sovereign debt rating closer to speculative territory on Monday in a blow to President Dilma Rousseff, whose efforts to stir the economy from a years-long slump have eroded the country’s finances.

Brazil had its long-term debt rating downgraded to BBB minus, the agency’s lowest investment-grade rating. S&P changed its outlook to stable from negative, meaning further downgrades are unlikely for now, which will come as a relief for both politicians in Brasilia and financial markets.

The move was widely expected but the timing surprised some investors.

As it came ahead of an October election in which Rousseff will seek a second term, the downgrade will expose her left-leaning government to further accusations that it has squandered the goodwill built during a long economic boom last decade.

Brazil has suffered from slow growth that averaged about 2 percent in recent years. Rousseff has tried to revive the economy with tax cuts and social spending but has been widely criticized for intervening too much and resorting to sometimes opaque accounting moves to meet budget targets.

“The downgrade reflects the combination of fiscal slippage, the prospect that fiscal execution will remain weak amid subdued growth in the coming years, a constrained ability to adjust policy ahead of the October presidential elections, and some weakening in Brazil’s external accounts,” S&P said.

The agency said that fiscal credibility had been “systematically weakened” following cuts in the government’s main budget target, and that loans by state-run banks had “undermined policy credibility and transparency.”

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza