The Brazil’s real fell along with bonds after Moody’s Investors Service cut the country’s sovereign debt rating to negative while a poll indicated President Dilma Rousseff has garnered more support despite the fact that the economy is battling a recession.
The real dropped 0.8 percent to trade at 2.2847 per dollar at Sao Paulo close, its lowest level since Aug. 25. Government bonds that mature in 2025 plunged 1 percent to 101.84 cents per dollar, the biggest decline since March.
Moody’s lowered the nation’s credit outlook, saying the weak economic growth is unlikely to get better in the short term. The currency plunged earlier on Tuesday after a CNT/MDA poll indicated that Rousseff would tie with Marina Silva, who was ahead in past surveys, in a runoff.
“The action by Moody’s took the market by surprise as it was still digesting the poll numbers,” Camila Abdelmalack, a Sao Paulo-based economist at CM Capital Markets, told Bloomberg News. “It shows we have a very serious fiscal problem.”
Moody’s gave Brazil a Baa2 rating, the second-weakest investment grade, saying the slow economic development and Rousseff’s expansionary fiscal measures were pushing debt levels higher. The report came after the national statistics agency reported on Aug. 29 that gross domestic product contracted by 0.6 percent in the second quarter, compared with a revised decline of 0.2 percent in the first three months of the year.
This means Brazilian economy has slid into recession after five years of straight economic growth.
The CNT/MDA poll indicated Silva will clinch 45.5 percent of the ballots cast in the second round against Rousseff’s 42.7 percent. The survey, which was conducted on Sept. 5-7, involved 2,002 respondents. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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