SAO PAULO, July 23 (Reuters) - Brazil’s currency, the real, tumbled on Thursday after the government announced it would slash its fiscal savings goals for this year and next, raising investor fears that the country may lose its investment-grade credit rating.
The real weakened nearly 2 percent in early trading to around 3.28 per dollar, its lowest level in four months.
Late on Wednesday Brazil’s government cut its primary surplus goal for this year to 0.15 percent of gross domestic product, from the originally budgeted equivalent of 1.1 percent of GDP.
Markets on Wednesday anticipated the announcement based on initial reports of the plans, driving the real 1.6 percent lower. The actual cuts announced after markets closed were bigger than many investors had expected.
“It became clear that the fiscal situation is much more difficult than it appeared,” said Carlos Vieira, an economist with Lerosa Investimento in Sao Paulo. “That may scare the ratings agencies and make Brazil’s economic recovery more difficult.”
The primary surplus, or revenue available to meet interest payments on debt, is closely watched by markets and credit rating agencies as a gauge of a country’s capacity to repay its debt. The agencies have warned they may further downgrade Brazil, a move which could undermine investor confidence and raise borrowing costs.
The government also reduced its fiscal savings goal for 2016 to 0.7 percent of GDP from a previous goal of 2 percent. (Reporting by Bruno Federowski and Asher Levine; Editing by Walter Brandimarte and Chizu Nomiyama)