Brazil Rating Raised to Investment Grade by Moody’s

Brazil’s credit rating was raised to investment grade by Moody’s Investors Service after Latin America’s largest economy built record foreign reserves and averted a prolonged recession amid the global financial crisis.

Moody’s cited Brazil’s “strong economic and financial resilience” during the worldwide slowdown as it raised the rating one level to Baa3, the lowest investment grade. The upgrade came a year after Standard & Poor’s and Fitch Ratings increased their ratings for Brazil above junk. Moody’s assigned a positive outlook, signaling it may lift the rating again.

Brazil’s Bovespa stock index rose to a 14-month high and the currency jumped the most in a month. The country’s foreign reserves climbed to $223 billion from a low during the crisis of $199 billion on Feb. 26 as prices for its commodity exports rebounded and investors poured money into the stock and bond markets, encouraged by President Luiz Inacio Lula da Silva’s stimulus measures. Reserves were $74 billion three years ago.

“The world is pulling out of the crisis and the country came through it displaying a strong resilience,” said Roberto Padovani, chief strategist at Banco WestLB do Brasil in Sao Paulo. The upgrade “consolidates a scenario of low risk for Brazil and it comes at a very important moment,” he said.

Real Gains

Brazil’s currency is up 29 percent against the dollar this year, the second-best performance among the 16 major currencies after the South African rand. Gross domestic product will shrink 0.4 percent this year, compared with a 7 percent contraction in Mexico, according to the median forecasts in Bloomberg economist surveys.

Brazil’s ability to pull through the global financial crisis “points to a material improvement in Brazil’s sovereign credit profile,” Mauro Leos, Moody’s regional credit officer for Latin America, said in a statement.

Moody’s “was waiting to see how Brazil was going to come out from this crisis, whether the crisis was going to be more profound and in the end it wasn’t,” said Pablo Goldberg, head of Latin American fixed-income strategy at HSBC Securities in New York. “The data shows that Brazil has turned the corner.”

Finance Minister Guido Mantega, speaking to reporters outside of the Moody’s office in New York today, said it was “much more significant” that the rating company took the action one year after credit markets seized up than if it had upgraded while the global economy was growing.

The decision “is a recognition of the efficiency with which” Brazil’s economy is being managed, Mantega said. With three investment grade ratings, Brazil will be able to attract more pension fund money to its bond market, he said.

Brazil is the second country in South America after Chile to have an investment grade rating from Moody’s.

Stocks Rebound

The benchmark Bovespa stock index has advanced 64 percent this year, reversing last year’s record 41 percent tumble, as the central bank cut the benchmark lending rate to a record low of 8.75 percent to shore up the economy.

The extra yield investors demand to own Brazil’s dollar- denominated bonds instead of U.S. Treasuries has narrowed to 2.20 percentage points from 4.65 percentage points on Jan. 15, according to JPMorgan Chase Co.

The Bovespa index gained 0.9 percent today to 61,484.89, the highest since July 2008. The real climbed as much as 1.9 percent to 1.791 per dollar, the strongest in a year. Brazilian bond yields slid for the first time in six days.