(Repeats to additional clients with no changes in text or
* Moody's says Brazil's policies prevented overheating
* Further improvement in fiscal accounts possible
* Some analysts want to see deeper spending cuts
(Adds context, quotes, economist reaction)
By Stuart Grudgings
RIO DE JANEIRO, June 20 Moody's Investors
Service upgraded Brazil's sovereign credit rating on Monday,
giving a vote of confidence to the government's efforts to
prevent Latin America's largest economy from overheating.
Moody's lifted Brazil a notch further into investment grade
status to "Baa2" and retained its positive outlook, underlining
the resilience of its economy compared to some European
countries that are suffering debt crises and rating
The agency said Brazil's policies had successfully dampened
overheating pressures that threatened to derail the economy
after torrid growth of 7.5 percent last year. It also said the
South American nation was less vulnerable to credit risks than
many others because of its solid banking system.
Brazil's central bank has raised interest rates four times
this year to 12.25 percent and taken other steps to curb strong
credit growth and inflation that is running at an annual pace
of 6.55 percent.
Still, some analysts questioned whether Brazil had done
enough to deserve the upgrade, its second of the year after
Fitch upped its rating in April. President Dilma Rousseff
announced budget cuts of more then $30 billion this year but
stopped short of bolder cuts to the bureaucracy and public
employee benefits that economists have long recommended.
John Welch, emerging markets strategist with Macquarie
Capital in New York, said he was "perplexed" by the timing of
the upgrade given that Brazil's fiscal situation has only
improved marginally after an election-year spending surge in
"I do not think that Brazil has improved as a credit," he
said. "So I suppose it is a catch-up."
Kathryn Rooney Vera, senior emerging markets strategist at
Bulltick Capital Markets, said Moody's move was a "bit
premature." given Rousseff's relatively timid spending cuts.
Brazil's real BRBY reversed losses after Moody's
announcement and traded 0.1 percent firmer at to 1.593 reais to
the dollar in afternoon trade.
Brazil first won investment grade status in 2008 after
years of solid growth and fiscal discipline, banishing its
reputation as a crisis-prone basket case.
CREDIT RISKS SEEN LOW
On Moody's ratings, Brazil is now one notch above India and
Ireland. In another sign of improving economic stability in
Latin America, Moody's awarded Colombia its second
investment-grade rating in two months in May.
For a graphic of Brazil's credit ratings click on
"I think investors realize that in terms of returns and in
terms of GDP ratios and fiscal balances, many emerging market
countries are doing better than the developed world," said
Clyde Wardle, emerging markets FX strategist with HSBC in New
York. "There is a lot to continue supporting Brazil."
Alexandre Tombini, Brazil's central bank chief, said
Moody's decision was a recognition of the "effectiveness of the
current economic policy in keeping and consolidating
Mauro Leos, Moody's Brazil analyst, said the agency had
maintained its positive outlook because there was scope for
more improvement in the fiscal accounts in the coming year.
"There is still a lot that needs to be done on the Brazil
fiscal side. We would like to see ... the fiscal results to be
better during booming times," he said.
"If that were to be the case, that would allow Brazil
eventually to go higher in the Baa category and possibly into
an A rating down the road."
Moody's said the Brazilian banking system appeared
resilient enough to weather any potential credit shocks.
Concerns about a credit bust in Brazil have grown as consumers
have gone on a debt-fueled spending spree in recent years and
are now facing sharply higher interest rates.
Banks' high capital ratios provide "a sturdy
first-line-of-defense against any such event," Moody's said.
(Additional reporting by Jeb Blount in Rio; Walter
Brandimarte and Alexandra Alper in New York; writing by Stuart
Grudgings; Editing by Leslie Adler)