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. 

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

Brent Crude
All Share
Top 40
Financial 15
Industrial 25
Resource 10
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Yes. We need the money.
11% - 839 votes
It depends on how the funds are used.
74% - 5569 votes
No. We should have gotten the loan elsewhere.
15% - 1117 votes