Updated 09:14 AM EDT, Thu, Jun 04, 2020

Brazil's Second Biggest Agency Gets Lower Rating Threatening Investment Grade Status

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Brazil is hit with another junk rating on Wednesday. This time was from Fitch Ratings, the second of the three big agencies to slash the country's hardly-earned investment grade status.

According to CBS News, the latest news roused fears that the recession pervading Brazil will last longer than expected. The decision was largely expected by markets, which will still limit investment in the nation as many global funds necessitate at least two agencies to recognize if a country is still worth the cash investment.

Standard & Poor's cut the rating of Latin America's biggest economy in August, CBS News wrote. This means that only Moody has kept Brazil's economy at investment grade.

In a statement quoted by the news outlet, Fitch said its decision represents Brazil's "deeper recession than previously anticipated, continued adverse fiscal developments and the increased political uncertainty that could further undermine the government's capacity to implement fiscal measures to stabilize the growing debt burden."

Fitch's action comes a day after President Dilma Rousseff sent a proposal to Congress to lessen a major fiscal target for 2016, which has a serious repercussion to those insisting that Brazil needs "strong austerity measures" to jump back from recession, CBS News added.

Fitch first gave an investment-grade rating to Brazil in May 2008, when the country's economy led by commodities was on the rise, Bloomberg wrote. The rating cut will increase pressure on Rousseff and her economic team, who are hoping to gain support in Congress to pass measures to raise taxes and cut down spending.

The country's economic turmoil is taking place amid political chaos that could lead to Rousseff's impeachment, CBS News noted. Both the political and economic crisis has been influenced by a corruption scandal involving state-oil giant Petrobras. Dozens of politicians, as well as CEOs of top construction, engineering, and investment bank firms are facing charges or already jailed.

Brazil's real currency also continues to weaken and has declined this year to 33 percent, which is considered the worst in emerging markets, Bloomberg added.

"The downgrades reflect a very difficult time for Brazil, with a deep recession combined with a government incapable of making a fiscal adjustment," Luciano Rostagno, chief strategist at Banco Mizuho do Brasil, said in an interview, as quoted by Bloomberg. "From now on, we'll probably see borrowing costs for companies and for the government on the rise, the real will remain under pressure, and the central bank will likely resume interest-rate increases."

Before Fitch's announcement, the global declines of Brazil's currency and stocks prompted speculations that the government will lower the budget target for 2016, proving its inability to support the country's finances, the news outlet wrote.

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