Brazil’s Long-Term Foreign Currency Rating Raised to Positive by S&P

S&P, which rates Brazil BBB-, the lowest investment grade, said in a statement that the government of Latin America’s biggest economy “has reaffirmed its commitment to support recent macroeconomic gains by continuing to adjust fiscal, monetary, and credit policies.” S&P’s outlook shift from stable comes less than two months after Fitch Ratings lifted Brazil’s rating to BBB, or two levels above junk.

“The positive outlook reflects the increasing likelihood that the pillars supporting Brazil’s macroeconomic stability will continue to strengthen in the coming years, gradually reducing the sovereign’s fiscal restrictions and vulnerability to external shocks,” S&P said in a statement.

President Dilma Rousseff unveiled in February a 50.1 billion real ($31 billion) spending-cut plan to help slow consumer demand and curb inflation. Brazilian central bankers have raised the benchmark lending rate 325 basis points, or 3.25 percentage points, to 12 percent since April 2010 to rein in the fastest inflation in six years.

“A continued commitment to meeting fiscal targets, along with prudent monetary policy that contains inflation expectations, could gradually set the stage for growing investor confidence,” S&P said.

The average yield investors demand to own Brazilian government dollar bonds instead of U.S. Treasuries declined to 165 basis points today from 189 on Dec. 31, according to JPMorgan Chase & Co. The gap touched 156 on March 8, the lowest since July 2007.