News update: Rand at 16-month high after Moody’s skips credit review

 News update: Rand at 16-month high after Moody’s skips credit review

News update.

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The rand rallied to a 16-month high on Friday after rating agency Moody’s skipped its review of South Africa’s credit rating and after a weak jobs report in the US prompted a sell-off of the dollar.

The rand gained strongly on Friday, climbing 0.15 percent to R14.08 to the dollar, its highest level against the greenback since January last year, as it returned to pre-pandemic levels. By 5pm on Friday, the rand was up 15 cents at R14.08 to the dollar, compared with 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 indicating that “no ratings were updated for” South Africa.

The could mean that the agency needs more time to assess South Africa’s economic prospects amid the Covid-19 vaccine roll-out and threats of a third wave of the pandemic.

Currently, Moody’s has the country’s sovereign rated at Ba2 with a negative outlook, because of concerns over rising government debt and the high public sector wage bill.

The government is locked in negotiations with public sector unions over wages as it tries to freeze salary increases over the medium term to shore up the fiscus.

South Africa’s economic growth is forecast to rebound to 3.4 percent this year from a 7 percent contraction last year as the global economy recovers because of the distribution of vaccines.

Moody’s did not indicate when the next rating announcement could be.

The ratings agency on Friday left the door open for S&P Global not to issue a rating review on May 21.

Fitch Ratings has not specified the date of its review.

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

Alexander Forbes chief economist Isaah Mhlanga warned that a rise in political risk might negatively impact the government’s economic reform agenda and the fight against corruption.

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

It is possible that Moody’s could require more time to determine whether South Africa’s sovereign rating has any prospect of changing for the better, as the country is ramping up its Covid-19 vaccination programme.

Domestic Covid-19 infections have picked up slightly, with the number of daily infections breaching the 2 000 mark for the first time in several weeks.

However, South Africa is ramping up its vaccination programme and will begin rolling out Phase 2 next week after the arrival of 325 000 doses of the Pfizer vaccine.

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

Roodt said rating agencies could postpone their announcements or they could change ratings, and they could do so whenever they want to do, because they were private organisations.

“I don’t think we should read anything into this. But as far as South Africa’s rating are concerned, I think our rating current levels will remain unchanged, and I think for a couple of months,” Roodt said.

“But I’m afraid if we do not fix especially the state’s finances, further downgrades can be expected. But for now, I think things are going to remain unchanged, at least for a couple of months.”

The US Labor Department reported that hiring slowed dramatically in April, with the unemployment rate rising to 6.1 percent amid an escalating shortage of workers.

Chris Louw

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