Rand takes Moody's in its stride, eyes now on MPC

Cape Town - The rand took Moody's decision to keep South Africa's sovereign credit rating at one notch above junk status in its stride, according to Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions.

The ratings agency made this announcement close to midnight on Friday night and even upgraded the country's outlook to stable.

"With the Moody's decision having been widely anticipated and markets having a knack for pricing in such events, the rand remained fairly flat, trading at R11.94/$, after gaining 0.94% during trade on Friday," Botes said on Sunday.

"The rand remained flat throughout the weekend, still trading at the R11.72/74 level.""

She anticipates that, as markets open on Monday, the rand is expected to gain some ground in the short term as investors reposition themselves.

"All eyes now shift towards the SA Reserve Bank's Monetary Policy Committee (MPC) on the 28 March. The SARB is expected to hold repo rates steady at 6.75% as the economy slowly shows signs of an uptick in line with global markets," said Botes.

Botes pointed out that Moody's resolution not to downgrade came after SA’s "transition" politically, moving from the era of former president Jacob Zuma to leadership under President Cyril Ramaphosa.

When making their decisions, ratings agencies mainly look for Treasury stability and government policy stability, she explained.

"In simple terms, the agencies seek to answer the following questions: Can the country service its interest and debt payments and can policy drive economic growth and activity?"

The recent budget speech as well as the leadership transition both appealed to Moody’s.

"Although this news is positive, one must still consider the long road ahead for SA - the next goal being to have the previous downgrades reversed," said Botes.

"Economic growth, employment and fixed capital investment will be key elements to ensure a robust investment environment moving forward as well as a clear path in terms of the Mining Charter and the redistribution of land."

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