Rand losing ground against major currencies after downgrade
A rating downgrade does not bode well for the country’s ability to borrow money and is expected to have negative effects on South Africans in the long term.
JOHANNESBURG – While investors start digesting the implications of the downgrade as the market opened at 9am, the rand had already started losing ground against the dollar in early trading.
The local currency lost around 2% on Monday following the decision by ratings agency Standard & Poor’s Global to downgrade South Africa's credit rating to junk status.
This morning the currency lost a further 1% and is expected to get weaker should rating agencies Moody’s and Fitch also decide to downgrade the country.
Moody’s, which has South Africa at two notches above junk status, has now also placed the country on review for a downgrade.
A ratings downgrade does not bode well for the country’s ability to borrow money and is expected to have negative effects on South Africans in the long term.
Head of the Johannesburg Stock Exchange Nicky Newton-King says this is very bad news.
“There will be less for service delivery for the very vulnerable people in our society. It would mean a much-delayed opportunity to really build growth and will put the local market under pressure.”
THE ANNOUNCEMENT WAS NOT UNEXPECTED
There has been general shock by economists to the decision of Standard & Poor’s Global to downgrade South Africa to junk status.
Rating agencies had warned that political instability in the country could lead to a downgrade.
S&P Global has become the first agency to make the move, downgrading the country to BB+ from BBB minus.
The agency has highlighted the executive changes initiated by President Jacob Zuma, saying these have put at risk fiscal and growth outcomes.
Nedbank Economist Isaac Matshego says: “The announcement was not unexpected but these things, when they happen, they still shock us.”
Investment Solutions Lesiba Mothata says there may be more bad news.
“We may have two rating agencies having downgraded South Africa to junk status in under a week.”
Argon Asset Management’s Thabi Leoka says: “They did warn us that they will downgrade us if they felt that politically, politics undermine economic policy adoption.”
(Edited by Leeto M Khoza)