UPDATE 3-Moody's surprises with two-notch Brazil rating cut

miércoles 24 de febrero de 2016 17:46 GYT

(Adds Moody's analyst comments and possible long-term market impact)

By Alonso Soto and Marcela Ayres

BRASILIA Feb 24 (Reuters) - Moody's Investors Service on Wednesday became the third major rating agency to downgrade Brazil's debt to junk, cutting its rating by two notches to Ba2 as the former emerging market star sinks deeper into its worst recession in decades.

Moody's said the outlook for Brazil's rating was revised to negative due to the prospect of further deterioration in its debt ratios as well as the risk of further external shocks.

Rivals Standard & Poor's and Fitch stripped Brazil of its investment grade rating last year. Moody's two-notch downgrade places its rating at the same level as S&P, which cut Brazil further into junk territory last week.

The latest downgrade is a blow to President Dilma Rousseff, who is under pressure to relax an austerity drive and stimulate economic growth as she seeks to survive impeachment proceedings.

The government said Moody's decision did not alter its commitment to reducing a fiscal deficit that topped 10 percent of gross domestic product last year. Treasury officials also said they did not expect the move to trigger an exodus of foreign capital.

Moody's analyst Samar Maziad told Reuters the two-notch downgrade was an uncommon decision but reflected the magnitude of the deterioration of Brazil's finances, which has been exacerbated by ongoing political paralysis.

Brazil's progress in shoring up its finances would be slow and growth anemic for the next two to three years, Moody's said. It warned that government debt would likely top 80 percent of GDP within three years.   Continuación...