UPDATE 1-S&P says erratic policy hurts Brazil's rating outlook
By Silvio Cascione
BRASILIA Feb 18 (Reuters) - Standard & Poor's said on Thursday that it might downgrade Brazil's rating further into junk territory as a political crisis delays important measures to rebalance the country's finances.
S&P director Lisa Schineller said on a conference call that the agency would keep a negative outlook for the country's rating as long as political uncertainties remain, suggesting a greater than one-in-three likelihood of another downgrade following a ratings cut on Wednesday.
S&P downgraded Brazil's credit rating deeper into junk territory to BB from BB+ on Wednesday, just five months after becoming the first agency to strip the country of its coveted investment grade.
Brazil's overall budget deficit is likely to remain high and economic growth weak, Schineller said, as impeachment proceedings against President Dilma Rousseff put off measures to bolster tax revenue and reduce government spending.
"The fluid political dynamics keep the risk of policy inconsistency and policy reversals on the table," Schineller said. "We'll revise the outlook to stable if we see conditions for consistent policy execution."
Schineller said the social security reform proposed by Finance Minister Nelson Barbosa was "very important", but like other initiatives, it faces political challenges. She also highlighted the risk of a growing budget deficit amid discussions of a flexible fiscal target.
"The fiscal trajectory continues to weaken," she said. "The ability to correct in the near term is definitely challenging." Continuación...