Moody's ups Brazil rating, praises policy steps

Ratings agency Moody's Investors Service upgraded Brazil's sovereign credit rating on Monday, giving a vote of confidence in the government's efforts to prevent Latin America's largest economy from overheating.

Moody's lifted Brazil a notch further into investment grade status to "Baa2" and retained its positive outlook. The action underlined the resilience of Brazil's economy when some crisis-hit countries in Europe are suffering downgrades.

Brazilian stocks and the currency gained slightly after Moody's announcement, which followed a one-notch upgrade to BBB by ratings firm Fitch in April. The Standard and Poor's agency in May raised its outlook to positive on its "BBB-" rating, the lowest rung of its investment grade ratings.

"Through a combination of fiscal and monetary measures, the authorities are in the process of defusing conditions that have caused overheating in the economy," Moody's said in a statement.

Even if a "bubble-like event" were to occur, it said, "its impact on the government's balance sheet is not likely to be substantial."

Brazil's central bank has raised interest rates four times this year and taken other steps to curb strong credit growth in Brazil, whose economy grew at a torrid 7.5 percent pace last year.

President Dilma Rousseff announced budget cuts of more than $30 billion to counter a surge in public spending last year that helped stoke inflation to a 6.55 percent annual rate.

Mauro Leos, Moody's Brazil analyst, said the agency had maintained its positive rating because there was scope for more improvement in the fiscal accounts in the coming months.

"There is still a lot that needs to be done on the Brazil fiscal side. We would like to see ... the fiscal results to be better during booming times," he said.

"If that were to be the case, that would allow Brazil eventually to go higher in the Baa category and possibly into an A rating down the road."