Rating agencies downgrade Brazil

On 9th September the rating agency Standard & Poor´s downgraded Brazil to junk status while the third agency Moody's has also just about maintained investment grade. However, the continued negative outlook suggests that there is still a risk of the rating being downgraded to junk status. The reason behind the downgrade also sounds anything but positive. 

The rating agency Fitch down-graded Brazil's rating to BBB, with the outlook still negative. There was a simple reason why the real did not suffer as a result of this decision: many investors had expected worse to come. At least BBB- is the lowest level of the so called investment grade, i.e. securities that are considered to be relatively safe. 

Fitch is referring to the rising national debt levels, the difficulties Brazil has consolidating its budget and the collapsing economy. The largest South American country is going through a deep economic crisis after the government's policy of unrestrained spending over the past years failed. 

Moreover the country is being shaken by a corruption scandal surrounding its President Dilma Rousseff. 

"The real is under pressure on two fronts: first of all as a result of homemade problems and also as a result of increased scepticism towards the Emerging Markets. We do not consider the recovery of the real since the beginning of the month to be sustainable and expect prices around 4.20 in USD-BRL by year-end", says Commerzbank.