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Rand strengthens after Moody’s revises outlook on SA

On Friday, Moody’s kept South Africa’s sovereign debt at BAA3 but revised the outlook to 'negative', citing a deterioration in the economic growth outlook and rising debt.

Picture: Supplied.

JOHANNESBURG - The rand and government bonds have improved after rating agency Moody’s kept the country’s last investment-grade credit rating unchanged.

On Friday, Moody’s kept South Africa’s sovereign debt at BAA3 but revised the outlook to “negative,” citing a deterioration in the economic growth outlook and rising debt.

There is a general consensus that a negative outlook usually means there is a window of between 12-18 months in which a downgrade could be delivered.

To go with this, Moody’s said a credible budget statement in February would be crucial to maintain the current rating.

A downgrade to junk status on the local-currency rating could trigger billions of dollars of outflows, as South Africa’s government bonds would be ejected from the benchmark world government bond index.

However, for now, the rand has strengthened to the dollar and stocks have edged higher.

But traders and fund managers have told Reuters that the gains will probably be short-lived, as it would be hard for Finance Minister Tito Mboweni to present a greatly improved fiscal picture in February.