Brazil’s credit score was upgraded by Fitch Ratings as the emergence of a new fiscal framework stokes expectations for further reform.
(Bloomberg) — Brazil’s credit score was upgraded by Fitch Ratings as the emergence of a new fiscal framework stokes expectations for further reform.
Fitch raised the South American nation’s debt rating to BB from BB- on Wednesday, putting it two notches below investment grade and on par with Guatemala and Vietnam. The outlook is stable.
“Brazil has achieved progress on important reforms to address economic and fiscal challenges,” analysts including Todd Martinez and Shelly Shetty wrote in a statement. “Key fiscal reforms are still pending final approval but have seen important progress, including a new fiscal framework.”
Brazil’s real rose against the dollar after the Fitch announcement, outperforming its Latin American currency peers on Wednesday and pushing year-to-date gains to about 11%.
Investors and analysts alike have welcomed President Luiz Inacio Lula da Silva’s fiscal plan, a proposal seeking to stabilize the country’s debt load that was further enhanced by lawmakers. The bill’s advance in Congress, along with better-than-anticipated economic data, has helped fuel a rally among local assets.
In a statement following the upgrade, Brazil’s Finance Ministry reaffirmed its commitment to the ongoing reform agenda, saying the measures should lead to lower interest rates, price stability and improved credit conditions.
“The upgrade shows Brazil successfully managed to anchor a scenario of fiscal responsibility and inflation control — paving the way for monetary easing,” said Bruno Stuani, a director at Plural Gestao, a Sao Paulo-based investment unit of Genial Investimentos.
Read More: Brazil’s Rate Outlook Improves, With a Cut Likely in August
To Fitch, the nation’s long-awaited tax reform will also help anchor gradual fiscal consolidation. A proposal to overhaul Brazil’s tax rules was approved by the lower house earlier this month, and has been among priorities at the Lula administration.
The upgrade follows a move by S&P Global Ratings, which in June raised Brazil’s outlook amid a lower risk of economic reform setbacks.
S&P rates the nation at BB-. Brazil is scored Ba2 by Moody’s Investors Service.
–With assistance from Giovanna Serafim, Davison Santana and Martha Beck.
(Updates market move in fourth paragraph, adds analyst commentary in seventh.)
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