Brazil cut down to 'junk' rating by S&P

Brazil's sovereign debt had its credit rating downgraded to junk status by financial services company Standard and Poor's (S&P) on Wednesday, further hindering efforts by embattled President Dilma Rousseff to rally investors' confidence amidst a corruption scandal and recession in Latin America's largest economy.

The downgrade came faster than anticipated, which will likely magnify borrowing costs for the government and Brazilian firms. Brazil only won its first investment-grade rating in 2008, and S&P's latest move is a major setback for leftist Rousseff who is trying to kickstart the economy amidst calls for her ouster over the latest recession and the kickback scandal at state-owned oil giant Petrobras, where she once chaired the board of directors.

The 2008 rating was a key component of solidifying Brazil's burgeoning economic power during its ten year commodities boom, which has fizzled in recent years as Chinese demand has waned.

Financial reforms lacking

S&P said it made the call on Wednesday to reduce the country's rating from BBB-minus to BB-plus based on unclear economic policy. On top of this, they also weighed the new 2016 budget - which already has a ten billion dollar deficit built in -submitted to congress last week, despite Rousseff's campaign promises last year to implement financial reform.

The move is expected to see investors pull the interests out of the country and make it far more expensive for Brazil to tap international credit markets.

es/bw (Reuters, dpa)