Standard & Poor's downgraded Brazil's credit rating to junk on Wednesday in the latest blow to embattled president Dilma Rousseff as she struggles with the country's worst recession in decades.

The ratings agency said the move was in response to last week’s submission by Ms Rousseff of a budget bill that projects a fiscal deficit for 2016. The agency said the country’s worsening political crisis called into question her government’s “ability and willingness” to stabilise the public finances.

The move came as a surprise as any decision to cut to junk was not expected until next year. Markets reacted by pushing the real to fresh 12-year lows against the dollar as traders dumped Brazilian shares and bonds.

Brazil’s securing investment grade status in 2008 was seen as a historic triumph for the country’s ruling left-wing Workers Party. But now its return to junk will likely intensify calls for President Rousseff to resign or face impeachment.

Her public support has disintegrated since her re-election last October with her approval rating in single digits amidst a massive corruption scandal that has exacerbated a severe economic contraction with unemployment on the rise.