Brazil: Downgrade points to continued underperformance – BBH
By FXStreet FXStreet (Córdoba) – Today Fitch rating downgraded Brazil’s credit rating below the investment grade. According to analysts from Brown Brother Harriman, Brazil assets will continue to underperform.
Key Quotes:
“Today’s Fitch downgrade is a stark reminder that Brazil continues to suffer from a toxic mix of high inflation, recession, low commodity prices, and heightened political uncertainty. Because we see no end in sight for these negative factors, we believe Brazil assets will continue to underperform.”
“The economy remains in recession. GDP growth is forecast to contract -3% in 2015 and -1% in 2016, with growth not seen until 2017. For 2014, GDP was basically flat. With commodity prices still falling and more policy tightening ahead, we think the risks are to the downside with regards to these growth forecasts.”
“Yet price pressures are still rising, with IPCA inflation of 10.48% y/y in November. This is the highest rate since November 2003, and well above the 2.5-6.5% target range.”
“There is a growing debate in the market over whether Brazil will resume its tightening cycle. The central bank has been on hold since July, when it hiked the policy rate by 50 bp to 14.25% and signaled an …read more
Source:: FX Street
