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Fitch Downgrades Brazil one notch, keeps investment grade

FXStreet (Córdoba) - Fitch Ratings downgraded Brazil’s sovereign rating by one notch from BBB to BBB-, with a negative outlook. The grade is now in the limit between “investment grade” and “junk”. The Brazilian real dropped but modestly. Last month Standard & Poor’s downgraded the rating below the “investment grade” status.

Today’s actions, according to the rating agency, reflect Brazil's rising government debt burden, increased challenges to fiscal consolidation and a worsening economic growth backdrop. “The difficult political environment is hampering progress on the government's legislative agenda and creating a negative feedback loop for the broader economy”.

The negative outlook “reflects Fitch's view that economic and fiscal underperformance is likely to persist while political uncertainty could continue weighing on broader confidence, delay a turnaround in investment and growth, and increase risks for the medium term fiscal consolidation needed for debt stabilization”.

The Brazilian real lost ground in the currency market after the downgrade but modestly. The impact was limited so far as the grade remained above the junk status. USD/BRL rose from 3.81 to 3.85; still remained below weekly highs that lie at 3.90.

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