MercoPress. South Atlantic News Agency

Japanese agency upgrades Brazil’s credit rating to BBB, second notch in investment grade

Good marks for the Dilma Rousseff administration fiscal policies

R&I Japan agency last week upgraded Brazil’s credit rating from BBB- to BBB, the second notch in investment grade level, with stable outlook.

In its report, the Japanese agency highlighted the creation of a robust domestic market due to a rising middle-income households; lower downside risks to the local economy during the external environment turmoil and maintenance of fiscal commitment by the new administration and active management of the monetary policy by the Central Bank.

The Japanese credit rating agency also pointed out to the quick growth recovery from 2008’s international crisis, with a significant GDP growth of 7.5% in 2010 and a perspective of convergence to its potential growth (4%) in 2012.

On the other hand, the agency also pointed out some challenges that Brazil needs to overcome in order to achieve further improvements in its creditworthiness.

Among those are the need to raise domestic savings rate to allow the increase in investments and the maintenance of the efforts to mitigate inflationary pressures.

R&I also points out that next year there could be strong pressure for salaries’ increase from government employees and similarly with pensions which will coincide with the expansion of outlays linked to infrastructure investment for the 2014 World Cup.

However the credit rating agency estimates chances of a significant deterioration of fiscal discipline are reduced.

It is worth to mention that this upgrade occurred during another period of turbulence in external financial markets, which “demonstrates the soundness of Brazilian policy management”, indicates the Brazilian Treasury.

The Brazilian Treasury also recalls that last 20 June Moody’s rating agency upgraded Brazil’s sovereign debt from Baa3 to Baa2 and two months earlier Fitch had done something similar upgrading it from BBB- to BBB.