Standard & Poor’s has raised its outlook on Brazil’s credit rating to positive from stable, praising the Latin American country for diversifying its economy, increasing exports and fostering the growth of the middle classes.
The rating agency’s more bullish view follows Fitch’s upgrade to Brazil’s local and foreign currency debt to BBB in April this year and comes at a time when several European countries are struggling to emerge from the global financial crisis and suffering downgrades.
S&P revised its outlook late on Monday on Brazil’s foreign currency sovereign credit rating to positive from stable, raising the prospect that it may soon upgrade the country further into investment grade territory from its current rating of BBB-.
The ratings agency also highlighted the positive start made by Brazil’s president, Dilma Rousseff.
“The new government has taken good action to deal with short-term challenges, such as on the inflation side,” said Sebastian Briozzo, one of the authors of the S&P report.
Brazil has introduced a series of measures this year to slow credit growth, which has been stoking inflation as consumers load up on debt to buy everything from televisions to liposuction.
Although 12-month inflation has been running just above the central bank’s upper limit of 6.5 per cent since April, month-on-month price rises have started to slow.
If Brazil continues down its current path, the country’s credit rating could be upgraded to BBB, Mr Briozzo said. This would be an important stamp of approval for a country which has only recently emerged from years of hyperinflation and political obscurity, but on practical terms it would also help reduce costs when selling government debt abroad.
However, Mr Briozzo warned that a big dip in commodity prices could slow Brazil’s economy and also expressed caution about the country’s low investment rate.
“Brazil needs to develop infrastructure. Despite all its progress, Brazil’s investment to GDP ratio is still an outlier compared to other countries,” Mr Briozzo said. “It invests less than 20 per cent of GDP,” he said, adding that there was a risk the government could become too reliant on BNDES, Brazil’s state development bank.
“However, for the time being these risks are contained,” he said.
Source: http://www.ft.com
The rating agency’s more bullish view follows Fitch’s upgrade to Brazil’s local and foreign currency debt to BBB in April this year and comes at a time when several European countries are struggling to emerge from the global financial crisis and suffering downgrades.
S&P revised its outlook late on Monday on Brazil’s foreign currency sovereign credit rating to positive from stable, raising the prospect that it may soon upgrade the country further into investment grade territory from its current rating of BBB-.
The ratings agency also highlighted the positive start made by Brazil’s president, Dilma Rousseff.
“The new government has taken good action to deal with short-term challenges, such as on the inflation side,” said Sebastian Briozzo, one of the authors of the S&P report.
Brazil has introduced a series of measures this year to slow credit growth, which has been stoking inflation as consumers load up on debt to buy everything from televisions to liposuction.
Although 12-month inflation has been running just above the central bank’s upper limit of 6.5 per cent since April, month-on-month price rises have started to slow.
If Brazil continues down its current path, the country’s credit rating could be upgraded to BBB, Mr Briozzo said. This would be an important stamp of approval for a country which has only recently emerged from years of hyperinflation and political obscurity, but on practical terms it would also help reduce costs when selling government debt abroad.
However, Mr Briozzo warned that a big dip in commodity prices could slow Brazil’s economy and also expressed caution about the country’s low investment rate.
“Brazil needs to develop infrastructure. Despite all its progress, Brazil’s investment to GDP ratio is still an outlier compared to other countries,” Mr Briozzo said. “It invests less than 20 per cent of GDP,” he said, adding that there was a risk the government could become too reliant on BNDES, Brazil’s state development bank.
“However, for the time being these risks are contained,” he said.
Source: http://www.ft.com
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