Brazil’s credit rating was cut to junk by Fitch Ratings, which became the second major ratings company to strip the country of its investment grade this year.
Brazil was downgraded one step to BB+ and the outlook for the grade is negative, Fitch said Wednesday in a statement. Brazil’s currency extended declines. The move could push investors worldwide to sell the country’s assets since many institutional investors such as pension funds require investments to be made in assets that are rated investment grade by at least two major ratings companies.
“Brazil’s downgrade reflects the economy’s deeper recession than previously anticipated, continued adverse fiscal developments and the increased political uncertainty that could further undermine the government’s capacity to effectively implement fiscal measures to stabilize the growing debt burden,” Fitch said in the statement.
The rating cut will add to pressures on President Dilma Rousseff and her economic team, who are struggling to gain support in Congress to pass measures aimed on shoring up fiscal accounts as she fights efforts to impeach her. Fitch initially gave Latin America’s biggest economy an investment-grade rating in May 2008. The ratings company lowered the rating to the brink of junk in October 2015.
The real weakened 2.2 percent to 3.9596 per dollar as of 9:42 a.m. in New York.