MercoPress. South Atlantic News Agency

Based on signs of greater fiscal restraint, Fitch raises Brazil’s credit rating to BBB

The government of President Rousseff trimmed 31 billion USD from the federal budget

Brazil’s credit rating was raised one level by Fitch Ratings, which cited the economy’s growth prospects and budget policy under President Dilma Rousseff.

The country’s foreign debt rating was lifted to BBB, the second-lowest investment grade and in line with Mexico, Russia and Thailand, from BBB-. The outlook is stable, Fitch said in a statement. The ratings company last boosted Brazil’s ranking in May 2008. Standard & Poor’s and Moody’s Investors Service rate the country one step lower at BBB- and Baa3, respectively.

Latin America’s biggest economy is forecasted to grow 4.1% this year after expanding 7.5% in 2010. Rousseff, who took office January first pledged to cut this year’s budget by 50 billion Real (31 billion USD) to help the central bank contain inflation.

“The Rousseff administration has displayed signs of greater fiscal restraint, which coupled with healthy growth prospects should allow for a fall in Brazil’s heavy general government debt burden,” Fitch said in the statement.

The extra yield investors demand to own Brazilian bonds instead of US Treasuries narrowed 1 basis point, or 0.01 percentage point, to 169, according to JPMorgan Chase & Co. The Bovespa stock index reacted by extending its advance and the Real pared its drop and was down 0.2% to 1.6095 per dollar.

“Brazil's economy is becoming more stable and risks are falling, which is being rewarded by the investment community but poses short-term problems for the strength of the Brazilian currency” said Brazil's Finance minister Guido Mantega following the announcement.

But as the economy improves, “it is more likely to attract foreign investment and dollars,” Mantega said, speaking to reporters at the Finance ministry in Brasilia. “At this time that creates something of a problem, but it's better to have that problem of excess dollars than the problem we had in the past, of a lack of dollars.”

The government ”will continue to make measures to contain the excessive (inflow) of dollars” promised Mantega.