FOREX Africa: South African Rand On The Edge Ahead Of S&P’s Rating

By Kevin Mwanza Published: May 30, 2016, 11:06 am
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The South African Rand slipped against major currencies on Monday as pressure piled on Africa’s third largest economy ahead of a possible credit rating downgrade by Standard & Poor’s on Friday, June 3.

S&P’s is expected to release its verdict on South Africa later this week, in which it will announce whether it will cut the country’s rating to junk.

The Rand slipped 0.4 percent in early trading on Monday to nearly 15.80 per dollar, According to data from Reuters.

Africa’s most advanced economy is expected to grow less than 1 percent this year, hobbled by low commodity prices, drought and political ructions that have unnerved investors.

In June last year global credit rating agencies Fitch and Standards & Poor’s (S&P) cut South Africa’s Economy credit standings to just a level above junk status as the country struggled with an array of both external and internal factors.

The downgrades were driven mainly by slowing GDP growth, which makes South Africa more vulnerable to capital outflows, rand depreciation, and rising budget and current account deficits (among other factors).

A recent Reuters poll showed that S&P’s and Fitch, also expected to decide on the sovereign rating in June, would cut South Africa to “junk” status in 2016.

Moody’s recently kept South Africa’s credit rating unchanged at two notches above junk status, with a negative outlook.

Fitch has not given a date for its next rating decision, but Finance Minister Pravin Gordhan said that the review was expected on 8 June.

If South Africa’s debt  is eventually rated as junk, it will be the first recession since the Apartheid regime ended some two decades ago.

The Africa’s  most industrialized nation, is faced with lethargic energy crisis due to its aging power grid, labor unrest in the mining industry which has been hurt by lower commodity prices on the international market and other contagion side-effect from an economic slowdown in china and strengthening US market.

At one point President Jacob Zuma, who investors have lost confidence in after a series of gaffes that saw him change the country’s Finance Minister twice in a week in December, termed the economy as “sick”.

Economist Dawie Roodt told Eye Witness News that he did not expect South Africa to be down graded due to it strong institutions including the constitutional court that ruled against President Jacob Zuma recently.

“Standard & Poor’s may look at South Africa and say the economy is not growing that well. The fiscal situation is in really dire straits, but perhaps the political situation could be changing over the next couple of months,” Roodt said.

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