The rand was weaker on Tuesday morning at a four-month low to the dollar, under pressure after Moody’s Investors Service revised down its 2020 GDP growth forecast for SA. On Monday, the ratings agency dropped its forecast to 0.7 percent in 2020 from the 1 percent it announced in November. It also lowered its 2021 growth prediction to 0.9 percent from 1.2 percent previously. The local currency reached R15/$, the second-worst performing currency of the 24 emerging-market currencies tracked by Bloomberg.
At 11.05m, the rand had weakened 0.70 percent to R15.0710/$, 0.55 percent to R16.3197/€ and 0.57 percent to R19.5777/£. The euro was little changed at $1.0828.
Investors ran for the exit door overnight after the downgrade as Moody’s is the last rating agency to hold South Africa’s sovereign debt at investment grade, and a review is due in March, said Oanda senior market analyst Jeffrey Halley.
“We can expect more investor outflows if that rating is reduced to junk next month making South Africa, as a Brazil, Russia, India, China, SA (Brics) member, more like a brick through the window, rather than a brick in the wall of the world’s future growth,” Halley said.
Should Moody’s downgrade South Africa to junk status, local bonds will fall off global bond indices and prompt automatic selling from institutional investors. Investors focus is now on Finance Minister Tito Mboweni’s budget speech next week amid hopes that the government will be able to rein in the budget deficit, and assuage Moody’s concerns.
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