Moody’s ‘Comfortable’ With Brazil Rating, May Review (Update2)

By Fabiola Moura
Jan. 29 (Bloomberg) -- Moody’s Investors Service is “comfortable” with its Ba1 rating for Brazil and will assess by mid-year how the credit crisis and economic slowdown affect the country’s ability to pay debt, senior analyst Mauro Leos said.
“For the time being, we feel comfortable,” Leos said today at a Brazilian-American Chamber of Commerce event in New York. There is a strong policy commitment in the case of Brazil, but it will be tested. We think that things are going to be really bad in terms of the numbers and economy by mid-year.”
Moody’s held Brazil’s foreign debt rating at Ba1, one level below investment grade, last year while Standard & Poor’s and Fitch Ratings boosted the country to BBB-, the lowest investment- grade rating, as record commodity exports buoyed foreign reserves and economic growth.
Leos said economic conditions in Latin America will deteriorate towards the middle of the year and there will be social and political pressures to change and modify policies in the region. Brazil’s economic growth will slow to 2 percent this year, the latest central bank survey of economists shows, less than half 2008’s estimated expansion. Leos predicted growth of “above zero” for Latin America’s biggest economy this year.
Moody’s “will take a closer look at Brazil” by mid-year, Leos said later in an e-mail response to questions.
‘Shocks’
“We expect to have elements that will allow us to better assess the impact of external shocks on the domestic economy, the effectiveness of the government’s policy response to those shocks and, last but not least, the potential credit implications for sovereign ratings,” he said.
Brazil’s 11 percent bond maturing in 2040 fell 1.58 cents on the dollar to 124.77 cents, lifting the yield to 8.69 percent. The yield is down from 9.87 percent on Nov. 20.
While Leos said he received pressure in 2008 from investors to match the rating increases by S&P and Fitch, last week he received his first call from a banker inquiring whether Moody’s would cut Brazil’s rating.
“It was interesting because the calls before were ‘why are you waiting to upgrade?’” he said.
It’s risky to raise an issuer’s rating at the “peak” of an economic cycle, Leos said. “We were not so confident about the fundamentals,” he said.
Brazil’s economy grew more than 6 percent for a fourth straight quarter in the July to September period.
“In a matter of two quarters, everything changed significantly,” Leos said. “This caught some people off guard.”