Brazilian Real And Bovespa Falling After S&P Credit Downgrade And Newly Announced Cutbacks In Public Spending

• S&P cut Brazil's credit rating to "junk"
• The Finance Minister announced new cutbacks in the 2016 budget
• The Real and Bovespa continue to plummet

On Thursday, Standard & Poor's downgraded Brazil’s sovereign credit rating to BB+. Although the move came as no surprise, the timing did catch many analysts and investors off guard, as the demotion was envisioned for later this year.

Related Link: S&P Cuts Brazil To Junk: What It Means

On Friday, Brazil’s Finance Minister, Joaquim Levy, pointed out that the budget for 2016 includes cutbacks in public spending, aimed at reaching a primary surplus of 0.7 percent of the GDP – above the originally projected 0.5 percent.

In an interview published on French-language site Les Echos, the Minister said “short-term, we have to let our exchange rate evolve freely and proceed to fiscal cutbacks.”

Following these news, the Brazilian Real is down 0.829 percent. One Real is now worth 0.2574 U.S. Dollars, and one U.S. Dollar is worth 3.8834 Reals. The currency is down 31 percent year-to-date, as concerns over the Fed rate hike and the sluggishness in the Chinese economy impacted on the overall Brazilian economy.

The Sao Paulo Stock Exchange is also down 0.68 percent to 46,187.4 Bovespa IBOV index points. Over the past three months, the index has tumbled almost 14 percent.

• Shares of Petroleo Brasileiro Petrobras SA (ADR) PBR also fell, 6.4 percent, on Friday trading.
• The iShares MSCI Brazil Index (ETF) EWZ lost 1.3 percent.
• The Market Vectors Brazil Small Cap ETF BRF declined only 0.26 percent.