SHAFAQNA – South Africa’s rand dipped to its weakest level in over four weeks against the U.S. dollar on Friday following a credit rating downgrade by Moody’s in the previous session.
Moody’s cited South Africa’s poor prospects for medium-term growth and rising public debt as the main reasons for cutting Africa’s most advanced economy’s credit rating to Baa2 from Baa1.
Moody’s did, however, adjust South Africa’s outlook from negative to stable, while identifying ongoing energy shortages and rising interest rates as a lag on the economy.
The rand extended losses against the dollar to more than 1 percent after Thursday’s downgrade, touching a session low of 11.2750, its weakest since Oct. 6.
“The result of the downgrade was a knee-jerk move weaker on the rand,” ETM Analytics economists said in a morning note.
“The Moody’s rating is now in line with that of Fitch, two notches away from junk and one above Standard and Poor’s.”
By 0627 GMT, the rand traded at 11.2635 per dollar, 0.04 percent off its New York close of 11.2590.
Yields on government bonds climbed, with the benchmark paper due in 2026 adding 9.5 basis points to 8.055 percent, a level it last reached on Oct. 16.
“For the currency to shake off this trend of credit deterioration it would require a massive turn in government policy,” the economists added.