ZAR rallies after Moody’s leaves credit rating untouched

Summary:

• Moody’s left South African last investment-grade credit rating unchanged on Friday
• Rating agency lowered the outlook to negative meaning a downgrade could be delivered in the months to come
• South African currency has rallied at the beginning of the new trading week

South Africa managed to maintain its last investment-grade credit rating on Friday, after Moody’s refrained from downgrading the country despite a bleak mid-term budget statement delivered last week. It means that Moody’s still rates the African country at ‘Baa3’, however, the agency decided to slash the outlook to negative signalling that a downgrade could be delivered during the next 18 months. In its statement it wrote “The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level.” Its new outlook reflects mounting concerns that the government will fail to find “the political capital to implement the range of measures it intends, and that its plans will be largely ineffective in lifting growth”. Let us remind that the South African government cut economic projections last week and now it sees growth at 0.5% this year. Moreover, government debt is projected to gradually rise to above 70% of GDP by 2023. Currency traders welcomed the Moody’s decision and rushed to buy the rand. As a consequence, the ZAR is trading 1.6% higher against the US dollar at the time  of writing this commentary. 

The USDZAR is moving back after Moody’s unexpectedly kept South African credit rating untouched. Source: xStation5