- Notes company cut grade of Brazil by two steps to Ba2
- credit metrics deteriorated `materially," Moody said
sovereign rating of Brazil was cut to junk Investors Moody Service, the last major rating companies to strip the country of its investment category, as President Dilma Rousseff is struggling to consolidate fiscal accounts amid deepening political turmoil.
reference gauge of stocks fell the most in two weeks the country and the currency weakened after the note has been reduced in two steps Ba2. The outlook is negative, meaning more downgrades may be ahead, Moody's said in a statement Wednesday.
Brazil's credit parameters deteriorated "significantly" in the last month and will get worse in the next three years, according to the company's rating, which also cited the negative impact of the political impasse on government efforts to close a budget deficit and structural reforms. The cut - Brazil third in as many months of major rating companies - adds pressure on Rousseff to win the support of lawmakers measures to raise taxes and cut spending as it fights efforts to remove
"Although she. was not a surprise, it still sends a negative signal to investors," said Arnaud Masset, Swissquote Bank SA analyst in Gland, Switzerland. "Unfortunately, the outlook remains very Brazil Clear that the market expects more legislators that minor reforms. "
the government remains committed to undertake a fiscal adjustment that would stabilize the public debt and strengthen the prospects for economic recovery in Brazil in the medium term, the Finance Ministry said in a statement after decommissioning.
Ibovespa stock indicator fell 2 percent from 8:43 in New York that the companies controlled by the state, including Petroleo Brasileiro SA and Banco do Brasil SA dropped. The real fell 0.8 percent, extending its decline over the past year to 29 percent, the most among the 16 most traded currencies in the world. Benchmark bonds the dollar slipped. The moves are in line with the decline in emerging markets worldwide on Wednesday.
Economists predict that Brazil is in the midst of its worst recession in a century as a rout of commodity prices and a slowdown in China dampens revenue from exports, including soy and ore iron. Meanwhile, annual inflation is running at the fastest pace in over 12 years, reducing the ability of the central bank policy makers to lower interest rates in an effort to fuel economic growth.
Tuesday, Congress approved a watered-down version of a bill to increase taxes on capital gains, a measure that was part of the government's strategy to increase revenue and reduce a record budget deficit. The Rousseff administration said last week that he would ask Congress to reduce the budgetary target of the government for this year with a deficit before interest payments rather than the excess, as the economic slowdown crimps tax collection efforts.
developments "on the macroeconomic and fiscal are expected next two to three years to produce a credit profile significantly lower," Moody said. "The negative outlook contemplates the risk of deterioration of the credit profile of Brazil from macroeconomic shocks, the deeper political dysfunction or the need to support government-related entities."
The government now estimates gross domestic product will contract 2.9 percent this year, rather than down 1.9 percent expected in November, the budget minister Valdir Simão said Friday. The economy contracted 4.1 percent in 2015, according to economic-activity index of the central bank, which is a proxy for GDP
Standard & Poor's cut the country in the level of investment in September -. And lowered again this month - while Fitch Ratings downgraded the nation's debt in December. All three have a negative outlook on Brazil.
Moody expects the economy will contract at an average rate of 0.5 percent per year between 2016 and 2018, with public debt will probably exceed 80 percent of GDP in three years amid slow progress on shoring up public accounts.
"Addressing the fiscal challenges Brazil will require significant political will and consensus," Moody said. "Although the discussion of structural reforms is a positive development, approval by the Congress will be difficult."
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