Fitch Ratings has just boosted Brazil’s credit rating outlook from stable to positive citing the Brazilian “growth dynamics” and “prudent” policies. Fitch rates Brazil BBB-, the lowest investment-grade rating and in line with rankings from Standard & Poor’s and Moody’s Investors Service.
Fitch last boosted the country’s rating in May 2008, taking it up one level from BB+.
Latin America’s largest economy may expand 7.13% this year, the fastest pace since 1994, according to a central bank survey, after rising domestic consumption helped pull the country out of its deepest recession in a decade in 2009.
Policy makers are paring economic stimulus and have boosted Brazil’s benchmark interest rate to 10.25% from a record low of 8.75% in March to contain inflation.
“The outlook revision reflects Brazil’s better-than-expected resilience and economic performance in the face of the global recession, which together with its relatively prudent economic policies should allow the country’s per capita income and fiscal solvency ratios to improve,” Fitch said in a statement.
“I think it’s great, but in terms of how that’s going to impact credit spreads it won’t have an enormous impact because the BBB’s all trade within a few basis points of one another,” said Siobhan Morden, a strategist at RBS Securities Inc. “When you look at the high grade Latin America pack, they all trade pretty much flat within the investment category.”
Brazil needs to further “improve” its fiscal stance amid rising inflation and “deterioration” in the current account deficit, according to the statement.
Brazil’s gross government debt is more than 60% of its economy, “well-above” the 10-year median of 35% of GDP for BBB-rated countries, Fitch said.
Fitch lifted Brazil’s rating to investment grade two years ago, partly as a rally in its commodity exports helped boost its foreign reserves to a record US$ 253 billion from US$ 38 billion when President Lula da Silva took office in 2003.
Brazil will implement new reserve requirements on credit operations undertaken by the nation’s banks, in compliance with the latest changes in the Basel Index, by 2012, the Central Bank of Brazil said in a statement Monday.
The latest changes in the Basel Index were agreed upon by leaders of the Group of 20 nations following the 2008 global financial crisis. Brazil is a member of the G-20, considered the 20 most important economies in the world.
The Basel Index sets reserve requirements over credit operations. The G-20 leaders have sought to tighten parameters for reserve requirements, under the Basel Index, as a way to assure greater prudence by banks in conducting credit operations.
In its statement Monday, the central bank said it will introduce the new Basel Index reserve requirements in two stages, in January 2012 and July 2012. The statement said Brazil’s implementation of the new requirements was “in compliance with the international timetable for introduction of the new rules.”
“These measures will strengthen the nation’s financial system,” said the central bank. “We will be implementing international standards in accordance with G-20 determinations. The measures will improve risk management in the market and ensure the competitive position of Brazilian financial institutions.