Rand firms for second day as markets consider downgrade unlikely

Cape Town - The rand continued to firm for a second day on Thursday morning, as markets considered it unlikely that Moody's will downgrade South Africa's sovereign credit rating.  

At 10:00 on Thursday, the local currency was trading at R11.77 to the dollar, after opening at R11.83 to the greenback. 

On Monday, the local unit traded as low as R12.09/$. 

Ratings agency Moody’s is set to announce on Friday whether it will downgrade the country’s sovereign credit rating to junk. 

It is the only major ratings agency to not have downgraded South Africa to non-investment grade, and currently has the country at one notch above junk.

Rival ratings agencies Fitch and S&P both downgraded SA to non-investment grade in 2017. 

"It is widely expected that Moody's will not downgrade South Africa, and that the 'negative watch' will likely be lifted," Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, said on Thursday morning.

"As long as the market expects a positive result, this will continue to be priced in and the rand will remain relatively strong as a result."

Wichard Cilliers, director and head of dealing at TreasuryONE, said in a statement said that there appears to be "enough comfort that SA will avoid a ratings downgrade come Friday evening" and the land reform issue "will be handled responsibly".

"We anticipate that the land reform can be an issue in the months ahead, judging by comments continuously made by politicians. This in turn can spark the downgrade debate again in 2018," he added.  

As Fin24 previously reported, SA labour and business bodies were upbeat earlier in the week that SA could stave off the downgrade, after they conducted an international roadshow to talk up SA Inc, which also included officials from National Treasury. 

“We saw all three ratings agencies (in London) and I’m happy to say that the mood seems to be positive,” Business Leadership South Africa CEO Bonang Mohale told Fin24 by phone from New York on Monday. 

The rand also firmed on Wednesday after the US Federal Reserve raised interest rates by 25 basis points to 1.75%. 

Friday evening 

Moody's has in the past made its South African credit rating decisions relatively late in the evening, but the agency could make the announcement at any time. 

Should it downgrade SA to non-investment grade, the country would automatically fall out of the Citi World Government Bond Index. 

If this happens, billions of rand are expected to leave SA, as foreign investors and index tracking funds sell their local bonds. 

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