Rand strengthens as SA staves off downgrade – for now
The rand opened stronger on Monday following the announcement that ratings agency Moody’s would keep the country’s credit rating two levels above junk – but we’re not out of the woods yet.
Late on Friday, Moody’s announced that it would keep South Africa at its Baa2 credit rating, saying that the country was “approaching a turning point” after many years of economic decline.
Following the news, the rand strengthened back below R15 to the dollar, to spend the weekend around R14.86 to the dollar. In early trade on Monday, the rand continued to gain strength, trading at R14.76 against the US currency.
Moody’s was fairly positive that finance minister Pravin Gordhan’s budget plan would curb excessive spending in the medium-to-long term.
However, the group changed the country’s outlook to negative – a warning that the stressful times were far from over.
The negative outlook reflects all the risks still facing South Africa, including the volatility of the international markets, Moody’s said.
Other ratings agencies
The Moody’s outlook for South Africa is contrasting to economists’ views of the country, which may still play out in other ratings agencies, Fitch and Standard and Poor’s.
Both Fitch and S&P have South Africa at one notch above junk, and have historically had a more negative and critical view on the country. Both agencies still have to do their review of the country, with S&P expected to start in June.
Credit rating history 1994-2015
Economists expect at least one, or both, of the ratings agencies to take a negative swing on the country and to cut its credit rating to junk.
The South African Reserve Bank shares this negative outlook, saying that the country faces a medium to high probability of a downgrade this year.
Reuters pointed to subdued risk appetite amid concern by investors about weak global growth, while SARB warned that that any ratings downgrade could lead to increased capital outflows.
More on South Africa
What the Reserve Bank thinks about SA junk status chances
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