Brazil Hit With Another Ratings Agency Downgrade

Fitch on Wednesday cut its rating on Brazil’s sovereign debt to “speculative”, better known as “junk”, because of the recession and political uncertainty. This is because some investment funds can only invest in countries given investment grade by at least two of the Big Three agencies.

Fitch cited the ongoing problems in Brazil, where thousands of protesters have been jamming the streets to demand the impeachment of President Dilma Rousseff.

The Fitch downgrade follows Moody’s warning December 9 that it could downgrade Brazil bonds, based on ” materially deteriorating macroeconomic and fiscal trends” and worsening political conditions.

It was the second downgrade to junk after a similar move from S&P in September, and will further complicate the troubled financial picture in Latin America’s largest economy. The ratings company lowered the rating to the brink of junk in October 2015.

Brazil’s currency, the real, fell about 2 per cent in midday trading. Finance minister Levy has been opposing a further lowering of the fiscal targets, and could possibly resign if this happens, something that would be negatively received by investors as he is seen as very credible.

Rousseff’s supporters on the congressional budget committee will introduce an amendment to the 2016 spending bill that would allow the administration to aim for a surplus before interest payments of 0.5 percent of gross domestic product, said Paulo Pimenta, the government’s leader on the committee.

Rousseff’s press office didn’t immediately respond to an e-mail seeking comment on Levy’s status or the downgrade by Fitch.

“(The downgrade) signifies rising Brazil risk and credit costs”, said Carlos Kawall, chief economist at Banco J. Safra. The Ministry also said that it is working in tandem with the federal government to address existing fiscal imbalances.