Debt Ratio, Policy Work Needed for Brazil Rate Hike: S&P

Brazil will need to see a sharper decline in its debt-to-GDP ratio and improve its fiscal policy in order to move up the ratings ladder after reaching investment grade last week, S&P analysts said in a conference call Friday. “The key to keep moving up the ratings table will be an effort to bring fiscal policy in line with higher-rated countries,” says Lisa Schineller, S&P MD. She sees the ending of the CPMF tax in December as an example of a setback. The decision to raise the Selic 50bp to 11.75%, the first increase in three years, was also key to the timing of the rating action. The move “reinforces the operational independence of the central bank, which is a key underpinning of this rating and an example of a proactive policy move,” she said. S&P also expects the real to depreciate this year due to a widening current account deficit, and a narrowing trade surplus.