The country’s benchmark stock gauge declined the most in two weeks and the currency weakened after the rating was reduced two steps to Ba2. The outlook is negative, meaning more downgrades may be coming, Moody’s said in a statement Wednesday.
Brazil’s credit metrics have deteriorated “materially” in the past few months and will worsen over the next three years, according to the ratings company, which also cited the negative impact of political gridlock on the government’s efforts to close a budget deficit and undertake structural reforms. The cut — Brazil’s third in as many months from major ratings companies — adds pressure on Rousseff to win lawmakers’ support for measures to raise taxes and reduce spending as she fights off efforts to impeach her.
Between the Zika virus, corruption scandals, rampant inflation and a shrinking economy, Brazil has been in a deepening crisis for months. President Dilma Rousseff, caught in an ugly impeachment fight, received a boost last week when the lower house re-elected her ally to lead it. But it’s difficult to see how a longer Rousseff tenure can be anything but bad for Brazil.
Brazil’s collapse may have started with the global commodities collapse, but the problems clearly go even deeper. Falling commodities prices have simply made it impossible to paper over the rotten frame that had been holding Brazil’s house together.