Moody's on May 26 changed the outlook on Brazil's issuer rating to negative from stable and affirmed its issuer, senior unsecured and shelf ratings at Ba2 and (P)Ba2 respectively.
The revision reflected rising uncertainty regarding the pace of reforms as political instability continues, increasing threats to economic recovery and Brazil's medium-term economic strength, the agency said.
The agency had warned May 19 of potential downside risks to the country's profile, after the Supreme Court authorized an investigation into President Michel Temer over allegations that he endorsed bribery of a potential witness in the country's biggest graft probe.
"With the focus of the administration shifting towards the political crisis, the government's ability to continue to develop and implement the reforms needed to address Brazil's economic and fiscal malaise will likely be undermined," Moody's said.
Brazil is expected to record GDP growth of 0.5% in 2017 with inflation dropping to 4.0%, which is within range of the midpoint 4.5% target and allows the central bank to continue monetary easing, Moody's said. But the threats to investor confidence could increase financial market volatility.
Fitch Ratings put Brazil on a negative outlook May 19, while S&P Global Ratings placed the country on Creditwatch with negative implications May 22.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.