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Last night, credit rating agency Standard and Poor (S&P), stripped off Brazil of its investment grade credit rating by reducing the rating to BB+ from BBB-. Immediately, lot of money will flow out of country's asset market, as many indices or funds invest money only in investment grade credit.
Today, there will naturally be lot of outflow as fund managers adjust their portfolio.
Real is currently trading at 3.86 against Dollar, down close to 2% today. Today at one point real traded as low as 3.905 against Dollar. In past 12 months, Brazil's currency is down close to 70%.
Analysts at Societe General thinks, Real could weaken to as low as 4.4 against Dollar, over next 2 months as capital outflow intensifies. There could be further downgrades to Brazil from other rating agencies such as Fitch or Moodys.
Brazil's economy in recession with GDP shrinking by -1.9% in second quarter and economists are now expecting the economy to shrink around -2.5% for the year.
Only small piece of good news from Brazil is that according to latest estimate Inflation has slowed marginally to 9.53% for 12 months to August, from prior 9.56%.
