The Brazilian stock exchange (Bovespa), this Friday, May 2, in its first trading session since Brazil was raised to investment grade by Standard and Poor's (the Bovespa was closed for the May Day holiday) opened strong and even broke a record before slowing down during the day.
A little after the session was opened for business, the Ibovespa, the Bovespa's main index, surpassed for the first time 70,000 points going as far as 70,973 points before backtracking.
The Ibovespa ended up closing at a record level: 69,366 points, 2.21% more than the previous trading session. The dollar, on the other hand, reached its lowest value in nine years: 1.65 reais for one dollar.
Rating agency Standard & Poor's, one of the main international rating agencies, announced this week that it has increased the Brazilian credit rating to "investment grade." With this, Brazil entered the group of countries considered to be of low risk to investors.
The agency elevated the Brazilian rating from BB+ to BBB-, classifying the country as investment grade. The announcement, made in the afternoon, generated an immediate reflex. Ibovespa, the main index of the São Paulo Stock Exchange, posted appreciation of 6.33%, the greatest increase since October 17, 2002, and reached almost 68,000 points, a historic record.
The volume of papers traded during the day of the announcement (April 30) was over 9.7 billion Brazilian reais (US$ 5.7 billion). On the exchange market, the American dollar suffered depreciation of 2.52% and at the end of the day, one dollar was being sold for 1.633 reais.
Standard & Poor's raised the country's sovereign long-term credit rating from BB+ to BBB-, and the long-term local currency sovereign credit rating from BBB to BBB+, among other reclassifications. The agency classified the long-term perspective for the country rating as "stable", which means that the grade should be maintained for a long time.
According to a statement by the rating agency, the new rating reflects the country's maturity and that of its economic policy, with the reduction of fiscal imbalances and of the foreign debt, which "declined dramatically", according to S&P.
This year Brazil rose to being a net foreign creditor. S&P also pointed out that there was an improvement in perspectives for growth of the economy.
The press statement points out that public debt remains high, but that the history of pragmatic fiscal management and debt policies reduces the risk in the area.
The Brazilian government disclosed figures showing that in the first three months of this year the public sector posted a primary surplus, economies made for payment of interest on the debt, of over 43 billion reais (US$ 25.2 billion), or 6.39% of the Gross Domestic Product (GDP).
The target for the year is 3.8% of the GDP. With greater economy, the public administration obtained a nominal surplus, after payment of interest, of over 3 billion reais (US$ 1.8 billion) in the first quarter.
The agency points out that the force of confidence in Brazil resides in factors like the continuation of the economic policy, despite government changes, focussing on the control of inflation and on the regime of fluctuating exchange rates, low foreign debt and a public dept profile in the same line as that of other nations with similar risk classification.
The press statement adds that the country has reasonably transparent institutions that, aligned to pragmatic and forecastable policies, made the country reach a good grade of economic stability, with more solid fundaments for growth and fiscal equilibrium having been built over the last five years. "This should continue in coming years," says S&P.
According to Agência Brasil, the governor of the Central Bank of Brazil (BC), Henrique Meirelles, said that the S&P decision came at a meaningful moment. Especially, according to Meirelles, as it takes place at a moment of turmoil in the global economy.
This shows, according to Meirelles, the "greater resistance" of the Brazilian economy, recognized by the rating agency. According to him, "the performance of the economy, with regard to investment, employment and income, is a clear demonstration that 'investment grade' clearly reflects the decisive improvement in economic fundaments."
Meirelles was in São Paulo when he heard the news. Soon after that, an advisor in Brazilian capital Brasília organized a teleconference, in which he said that an important figure, presented by Standard & Poor's, was a forecasted matter. This, pointed out the BC governor, is the result of stability.
"Forecastability is fundamental to guarantee sustained growth for the country and is the result of persistence in the implementation of consistent economic policies," pointed out Meirelles.
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