After S&P upgraded Brazil’s credit rating to investment grade on April 30, Fitch Ratings followed on May 29 granting Brazil investment grade status. The upgrades by both agencies recognize the country’s fiscal stability and debt management policies and reflect, amongst other factors, economic growth and the governments control over inflation.
S&P raised the country’s long-term foreign currency sovereign debt rating from BB+ to BBB-, while the long-term local currency sovereign credit was upgraded from BBB to BBB+. In addition, the agency upgraded the rating of ten Brazilian entities. The banks Bradesco, Itau and Itau BBA, already at investment grade, were upgrated from BBB- to BBB. Furthermore, the banks Banco do Brasil, Unibanco, Santander Banespa, BNDES and Banco do Nordeste do Brasil as well as the energy company Eletrobrás were elevated to investment grade, passing from BB+ to BBB-.
Fitch Ratings on the other hand raised the country’s rating from BB+ to BBB-, passing from speculative grade to investment grade.
The upgrade to investment grade status will make Brazil more attractive to investors and result in an increasing capital inflow. A broader range of investors, especially more conservative investors, pensions funds etc, whose statutes require investment grades from one or more rating agencies, will now be able to invest in Brazil.
The investment grade may additionally lower risk premiums and funding costs for investments.
As mentioned above, the upgrade of Brazil’s rating to investment grade shows the country’s sucessful fiscal and economic policies. The economy is expected to maintain its growth rhythm at about 4.5%, following a 5.4% growth in 2007. Foreign direct investments reached 34.6 Billion U$ last year, a number expected to be matched in 2008. In January, Brazil became a net foreign creditor for the first time. For the future, the government has to continue its efforts to control public debt and government spending as well as rising inflation.
The third major rating agency, Moody’s Investors Service, rates Brazil currently at Ba1, one level below investment grade. However, an upgrade to investment grade is expected still for this year.
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