Moody's revises Brazil outlook to stable, citing reform prospects

Ratings agency Moody`s Investors Service on Monday revised the outlook for Brazil`s sovereign rating from negative to stable, in a vote of confidence that the winner of this year`s elections will deliver an unpopular agenda of cuts to government spending.

In a statement, Moody`s analysts said faster-than-expected economic growth is also likely to support austerity efforts, which have failed to bring the government`s debt metrics to levels consistent with similar-rated peers.

"Moody`s expects the incoming administration to resume efforts to approve further reforms that will be needed, in particular to social security, to comply with the constitutionally-mandated spending ceiling," the statement said.

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The more optimistic tone came just days after the imprisonment of former President Luiz Inácio Lula da Silva, who has railed against the current government`s belt-tightening efforts and leads polling ahead of an October presidential vote.

Lula turned himself in to police on Saturday to begin serving a 12-year sentence for a bribery conviction, effectively impeding his efforts to return to power.

Brazilian markets fell on Monday as traders feared his supporters could turn to a similar candidate in a wide-open field of candidates, many of whom are appealing to voters` anger after a painful downturn and sweeping corruption scandal.

Still, Moody`s cited a consensus among political leaders at the costs of abandoning fiscal responsibility, particularly due to a constitutional amendment limiting growth of public spending passed by President Michel Temer`s administration.

Moody`s kept Brazil`s rating at Ba2, two notches below investment-grade status. Faster-than-expected fiscal reforms could spur an upgrade, while "a re-emergence of political dysfunction" or "stalled reform momentum" may trigger a downgrade, Moody`s said.

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)