Moody’s Investors Service announced on Wednesday consider lowering the sovereign rating of Brazil to speculative grade (“junk”), arguing the severity of the current recession, the failure of austerity measures and the growing risk of paralysis policy. If Moody’s lowers the note at the end of this examination which usually lasts three months, it will be the second largest agency in bringing the Brazilian debt to the level of junk bond, after Standard & amp; Poor’s in September. Fitch Ratings has in turn lowered its rating in September just above the category of “junk” and maintains a negative outlook.
A second degradation to junk status would probably result in large capital outflows because many foreign pension funds and other large institutional investors can not hold bonds of an issuer rated “junk” by two agencies distinct. Bruno Rovai, Barclays economist amounted to 1.6 billion dollars (1.45 billion euros) potential output in case of downgrade by Moody’s.
Moody’s justifies its investment in reviewed by “rapid and significant deterioration of macroeconomic and fiscal developments and the reduced likelihood of a trend reversal in the next two to three years.” The Brazilian economy contracted by 4.5% in the third quarter compared to the same period last year according to statistics released last week. This is the worst recession experienced by the country in 25 years.
Moody’s adds that factored into his decision “degradation of the context of government action and the increased risk of political paralysis” After the opening by the Brazilian Congress for impeachment of the President, Dilma Rousseff. The Brazilian Supreme Court suspended the procedure until a ruling on its constitutionality, did on Wednesday a judicial source.
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