Rand tanks after South Africa gets junk rating
The rand came under renewed pressure in evening trade on Monday (3 April) after ratings firm S&P Global downgraded South Africa’s sovereign credit rating to junk status.
According to analysts, junk status has been an inevitability for South Africa for some time, as the country has struggled with debt, high levels of unemployment, incredibly slow economic growth and political uncertainty under president Jacob Zuma’s tenure.
By 18h30 on Monday the rand lost nearly 2.2% of its value against the greenback, trading at R13.70, having closed last week at R13.42.
- Dollar/Rand – down 2.17% to R13.70
- Pound/Rand – down 1.70% to R17.09
- Euro/Rand – down 2.27% to R14.63
S&P downgraded South Africa’s foreign currency rating to BB+ – officially sub-investment grade – while local currency debt has been downgraded to BBB- (one notch above junk).
Both ratings carry a negative outlook, meaning further downgrades may lie ahead.
S&P said that its negative outlook reflects the view that political risks will remain elevated this year, and that policy shifts are likely – which could undermine fiscal and growth outcomes more than we currently project.
“If fiscal and macroeconomic performance deteriorates substantially from our baseline forecasts, we could consider lowering the ratings,” it said.
“We could revise the outlook to stable if we see political risks reduce and economic growth and/or fiscal outcomes strengthen compared to our baseline projections.”
Two other agencies are expected to deliver their reviews on South Africa in the coming weeks, starting with Moody’s on Friday (7 April).
Moody’s currently has South Africa at two notches above junk status, with expectations that the group will cut the country to one notch above junk.
Fitch meanwhile, has South Africa at one notch above junk.
Read: Rand slump continues ahead of credit rating review on Friday
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