Rand goes back 16 months as Moody’s skips SA credit rating review

Through Siphelele Dludla 4h ago

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JOHANNESBURG – THE RAND hit a 16-month high on Friday after rating agency Moody’s skipped its review of South Africa’s credit rating and after a report on weak US employment caused the dollar to sell off.

The rand rose sharply on Friday, climbing 0.15% to 14.08 rand to the dollar, its highest level against the greenback since January last year, as it returned to pre-pandemic levels . At 5 p.m. on Friday, the rand was up 15 cents to R14.08 to the dollar, from the previous day’s close.

Moody’s Investors Service skipped its scheduled review of the country’s sovereign credit rating on Friday, but issued a note saying “no rating has been updated for” South Africa.

This could mean the agency needs more time to assess South Africa’s economic outlook amid the deployment of the Covid-19 vaccine and threats of a third wave of a pandemic.

Currently, Moody’s has the country’s sovereign rated Ba2 with a negative outlook, due to concerns about rising public debt and high public sector payrolls.

The government is stuck in negotiations with public sector unions over wages as it tries to freeze medium-term wage increases to shore up the tax authorities.

South Africa’s economic growth is expected to rebound to 3.4% this year after contracting 7% last year, as the global economy recovers due to vaccine distribution.

Moody’s has not indicated when the next rating announcement could take place.

On Friday, the rating agency left the door open for S&P Global not to publish a rating review on May 21.

Fitch Ratings did not specify the date of its review.

Economists were optimistic even before the announcement that Moody’s would spare South Africa another downgrade and that there wouldn’t be much volatility.

Alexander Forbes chief economist Isaah Mhlanga warned that an increase in political risk could have a negative impact on the government’s economic reform agenda and the fight against corruption.

“Given the improving growth outlook, better than expected tax revenue collections and fiscal consolidation remaining intact, we did not expect Moody’s to further degrade South Africa,” Mhlanga said. .

Moody’s may need more time to determine whether South Africa’s sovereign rating is likely to change for the better, as the country ramps up its Covid-19 vaccination program.

Domestic Covid-19 infections increased slightly, with the number of daily infections crossing the 2,000 mark for the first time in several weeks.

However, South Africa is stepping up its vaccination program and will start rolling out phase 2 next week after 325,000 doses of Pfizer vaccine arrive.

Efficient Group chief economist Dawie Roodt said Moody’s decision to skip its review of South Africa’s rating was “not unusual.”

Roodt said rating agencies can postpone their announcements or change the ratings, and they can do that whenever they want, as they are private organizations.

“I don’t think we should read anything in there. But when it comes to South Africa’s rating, I think our current rating levels will remain unchanged, and I think for a few months, ”Roodt said.

“But I’m afraid that if we don’t pay particular attention to the state finances, we can expect further downward revisions. But for now, I think things are going to stay the same, at least for a few months.

The US Department of Labor reported that hiring slowed significantly in April, with the unemployment rate hitting 6.1% amid a growing shortage of workers.

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