(Adds quotes from Moody’s analyst, background)
By Guillermo Parra-Bernal
SAO PAULO, Oct 6 (Reuters) - Brazil will be able to maintain its coveted investment-grade rating if its economy improves next year and the government builds a political consensus around crucial austerity measures, a senior analyst with Moody’s Investors Service said on Tuesday.
Mauro Leos said at a Moody’s seminar in Sao Paulo that Brazil’s Baa3 rating, the firm’s lowest investment-grade level, could be lowered to junk if political instability grows further and hampers President Dilma Rousseff’s ability to deliver on her fiscal and growth promises.
Moody’s downgraded Brazil to the brink of junk nearly two months ago with a stable outlook, which suggests the rating is unlikely to change in the short term.
Pressure on Moody’s and competing firm Fitch Ratings to downgrade Brazil has grown, however, after Standard & Poor’s cut the country’s ratings to junk last month.
While Leos said Brazil’s stable rating outlook incorporates Moody’s expectation that Latin America’s largest economy will start to improve in the second half of 2016, economists are still unsure about the timing of an economic rebound.
Most of them expect the economy to post a recession this year and next, according to a central bank weekly poll.
Moody’s will monitor Rousseff’s ability to pass legislation needed to improve public finances next year, Leos said, adding that unpopular tax hikes seem unavoidable now.
“The reality right now is that there has to be a revenue component and that requires political consensus,” Leos said. “The lack of that consensus has affected business confidence and perceptions in general.”
Moody’s has no date set to review Brazil’s rating as it has a stable outlook, Leos said, adding that he will likely wait until “things get clearer” before making any decisions. (Reporting by Guillermo Parra-Bernal, writing by Walter Brandimarte; Editing by Chizu Nomiyama and W Simon)