South Africa awaits credit rating decision

Ratings gency, Standard & Poor’s is set to announce its decision on South Africa’s credit rating on Friday.

The country is currently one notch above sub-investment status.

The general consensus among economists is that South Africa will avoid a downgrade to  junk status until at least the end of the year.

Finance Minister Pravin Gordhan believes that the country will avoid a downgrade. “I think we’ve done enough to pass the June hurdle,” he said in an interview with Bloomberg TV in Paris on Wednesday. “In the next six months we have to do more, particularly in terms of implementing what we’ve decided.”

S&P and Fitch both rate South African debt one level above junk. S&P, which has a negative outlook on its BBB- assessment, is due to announce whether it will downgrade the rating on June 3, while Fitch hasn’t said when it will announce the outcome of its review.

Twelve of 13 economists and analysts surveyed by Bloomberg in April said they expected S&P to lower the rating to non-investment grade by the end of this year, with four expecting the downgrade to BB+ to happen this week.

That would put South Africa on par with Turkey and Indonesia.

“We are at a big risk of being downgraded,” Thabi Leoka, an economist at Argon Asset Management, told Bloomberg on Thursday. “I think it’s a 50/50 probability.”

If the rating is cut “there could be a bit of a shock,” said Malcolm Charles, a portfolio manager at Investec Asset Management. “There’ll be quite a negative reaction from bonds, equities and the currency come Monday morning. It’ll be quite a nasty start to the week.”

The rand traded at R15.54 versus the dollar in morning trade on Friday.

Reporting with Fin24

More on South Africa’s credit rating

What a ratings downgrade means for the rand

What junk status means for South Africa

How to avoid a ratings downgrade in South Africa

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South Africa awaits credit rating decision