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09 Sep 2015

S&P Downgrades Brazil

One of the leading rating agencies downgraded Brazil's credit rating to BB+

Standard & Poor's (S&P) downgraded Brazil on September 9, to rating BB+, the highest junk rating. The timing of the move took most by surprise, and was explained by S&P as a consequence to the deteriorating fiscal situation and came right after the government presented a budget to congress for 2016 with a deficit of 0,5% of GDP.

Brazil earned its investment grade rating in 2008, and S&P is the first of the 3 major rating agencies (S&P, Fitch and Moody´s) to give the junk rating. It is hoped that the downgrade will force the government and congress to move ahead with needed fiscal reforms to improve the economic outlook.

Since the downgrade the currency has continued to lose value, and the country risk premium has increased significantly, and most consider that these levels already has incorporated a downgrade by at least of the other 2 major rating agencies.