Fitch to conclude review of Brazil's rating

BRAZIL: Fitch Ratings will conclude its annual review of Brazil's credit rating by July, when it will decide whether to revise the country's rating outlook to negative, which would be the first step toward a possible downgrade.

The review is part of a regular process that Fitch is required by law to complete every year, company analyst Shelly Shetty said.

She stressed that there are no preconceived ideas about what the decision is going to be but acknowledged that Brazil is not on a positive path.

"We don't anticipate any upward rating momentum in Brazil in the near term," Shetty said on the sidelines of an Inter-American Development Bank meeting in a resort near the Brazilian city of Salvador.

"Generally speaking, if we were to perceive negative pressures generally, we would signal it through a negative outlook."

So far, only Standard & Poor's has decided to cut Brazil's rating, interrupting a series of upgrades that had lifted the country's credit rating to investment-grade about five years ago.

Fitch and Moody's Investors Service have maintained a stable outlook on Brazil's ratings, which stand at the second-lowest investment-grade level in the rankings of both agencies.

For now, Fitch sees a balanced outlook for Brazil despite its recent warnings that the country needs to tighten fiscal policy to maintain its BBB credit rating, Shetty said.

"Yes, we've expressed some concerns but we also have to look at the mitigating factors which are there," she said, reiterating that the government's decision to freeze 44 billion reais ($19.5 billion) of this year's budget was a step in the right direction. That move is part of the government's strategy to reach a primary budget surplus of 1.9 percent of GDP.

Many investors fear that President Dilma Rousseff will have a hard time cutting expenditures during an election year in which she will seek a second term.

In February, however, Brazil posted a primary budget surplus of 2.13 billion reais ($942 million), according to central bank data, defying forecasts for a 500 million-reais deficit.

Shetty also said Brazil's low economic growth, another source of concern for Fitch, could also get some traction if there is an improvement in business confidence in the near future.

STABLE WITH A NEGATIVE BIAS:

For Latin America in general, Fitch expects sovereign ratings to remain mostly stable, with the number of downgrades exceeding that of upgrades, Shetty said.

She noted that stability follows a raft of sovereign upgrades last year, including those for Mexico, Peru, Colombia, Uruguay and Ecuador.

Right now, only Paraguay retains a positive rating outlook from Fitch, Shetty said, adding that the agency tends to be "very selective" in future upgrades as external conditions take a turn for the worse.