Fitch downgrades Brazil to junk

Fitch Ratings became the second major agency to strip Brazil of its investment-grade credit rating on Wednesday, downgrading it by one notch to BB+ with a negative outlook and potentially prompting further selling of Brazilian assets.

The ratings agency pointed to a deteriorating economic outlook and political uncertainties.

Fitch said: “Brazil's downgrade reflects the economy's deeper recession than previously anticipated, continued adverse fiscal developments and the increased political uncertainty that could further undermine the government's capacity to effectively implement fiscal measures to stabilize the growing debt burden.”

It said the negative outlook highlighted continued uncertainty and downside risks related to economic, fiscal and political developments.

“The deteriorating domestic backdrop is increasing challenges for the authorities to take timely corrective policy actions to support confidence and improve prospects for growth, fiscal consolidation and debt stabilisation.”

Fitch said the recent start of impeachment proceedings against President Rousseff is adding uncertainty to an already difficult political environment and leading to continued political stalemate.

In September, Standard & Poor’s downgraded Brazil’s credit rating to junk grade as it highlighted the nation’s deteriorating budget deficit and political issues.

The Brazilian real slid 2% against the greenback on news of the downgrade.