Fitch upgrades Brazil on increased potential growth rates

Fitch yesterday upgraded Brazil from BBB- to BBB driven by its assessment that the potential sustainable growth rate for Brazil's economy has increased to the 4-5% range.

Politically, the transition of power to the new president, Dilma Rouseff has been smooth and the consensus on responsible macroeconomic policies remains well-anchored. The Rousseff administration has also displayed signs of greater fiscal restraint, which, coupled with healthy growth prospects should allow for a fall in Brazil's heavy general government debt burden, says Fitch.

GDP growth in Brazil hit 7.5% last year, and Fitch's base case assumes that the tightening of macroeconomic policies that is currently underway should allow for a soft-landing of the Brazilian economy with growth reaching approximately 4% in 2011.

Near-term economic challenges include trying to tame inflation and bring it to the mid-point of the target range, as well as moderating the pace of credit growth, says Fitch.