D-day looms again for South Africa’s credit status
Markets will again be tested as South Africa faces a final interest rates decision of the year, and a credit rating review from Moody’s next week.
According to Reuters, traders expect the rand to stay in a narrow range until then. “The rand is probably going to start quieting down ahead of the big events from next week,” Rand Merchant Bank trader Jim Bryson said.
There will be concern that rating firms could act on the recent political turmoil and weak economic growth.
Moody’s is expected to deliver its review on 25 November – it currently rates South Africa two notches above ‘junk’. Fitch and S&P, which have the country only one level above sub-investment grade, will give their verdicts in December.
More than half of 12 economists surveyed by Bloomberg said S&P Global Ratings will strip SA of its investment-level rating. The median probability of South Africa retaining its investment-grade assessment in December is 45%, falling to only 20% in 2017, the survey showed.
A similar Bloomberg poll six months ago showed 12 of 13 economists said the country’s credit rating will be cut to junk by the end of the year.
“I don’t think it’s high enough on the priority list. That we are seeing enough being done,” Christie Viljoen, an economist at KPMG told Bloomberg.
“It might be enough at the moment to avoid an immediate downgrade in December, but if it is avoided in December, it’s going to happen next year.”
Deputy Finance Minister Mcebisi Jonas told journalists earlier this week: “We will be able to maintain the current expenditure ceiling, we think we will, and I dare say, we convinced them we can.
“My sense is that there was general acceptance of our constraints and the good work we are doing.”
“We aren’t deteriorating, we are just moving sideways at the bottom,” Thabi Leoka, an economist at Argon Asset Management in Johannesburg, said.
“The political noise is a problem and it’s the biggest risk, I even think that it’s a bigger risk than growth.”
“While S&P is likely to remain quite bearish and quite negative on South Africa, there is sufficient scope for them to keep our rating at a BBB- level,” Mohammed Nalla, head of strategic research at Nedbank Group told Bloomberg. “Potentially this buys us another six months worth of time. It doesn’t mean we are out of the woods.”
The central bank is expected to keep domestic rates unchanged at 7% next Thursday.
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