Rand Weakens as South Africa Awaits S&P Rating Decision

Standard and Poor’s (S&P) is expected to announce its rating decision with regards to South Africa’s economy today. In the meantime, the Rand has weakened at the prospect of the country being downgraded to ‘junk’ status for the first time since 2000.

S&P currently rates South Africa one notch above junk status.

The rating agency’s decision comes after Moody’s Investors Services (Moody’s) announced that is has left South Africa’s government bond long- and short-term ratings of Baa2/P-2 unchanged with a negative outlook — two notches above sub-investment grade.

The agency decided not to have a formal review process, given their recent affirmation of the sovereign rating in May 2016.

In the same vein, Fitch last Friday affirmed its BBB- ratings on the South African government’s long-term debt held in foreign and local currencies. The short-term debt held in foreign and local currencies was also affirmed at F3.

The rating outlook has been revised to negative from stable. Many blamed government and an unhappiness with the leadership of President Jacob Zuma for the drop in the outlook.

With last week’s rating decisions, government has said that the South African economy has demonstrated its resilience despite the challenges it faces.

National Treasury said the country’s credit rating strengths include the Constitution and the Public Finance Management Act (1999), which entrench a centralised, accountable framework for fiscal management.

South Africa’s inflation targeting policy, implemented by the South African Reserve Bank since February 2000, has helped to anchor inflation expectations and reduce interest rate volatility.

As SA awaits the decision – the rand traded at 14.1325 per dollar Friday morning, which is 0.23 percent weaker from its New York close on Thursday.

Main source: SAnews.gov.za