Rand extends drop after Moody’s growth forecast change; worst emerging-market currency of 2020
The rand extended losses above R15/$, making it the worst-performing emerging-market currency of 2020 so far, after Moody’s Investors Service’s downward revision of SA’s growth prospects fueled concern that a downgrade is in store.
Moody’s revision puts the ratings agency, the only one that still has SA in investment grade, in line with recent forecast changes by the World Bank and private sector lenders who sees the economy expanding less than 1% due to Eskom’s power cuts and lacklustre spending.
On Monday, the ratings agency dropped its GDP growth forecast to 0.7% in 2020 from the 1% it announced in November. It also lowered its 2021 growth prediction to 0.9% from 1.2% previously.
Lower growth, in the absence of reduced spending, makes it more difficult for the government to contain debt and get its finances into shape. Coming just a week before the budget, the report by Moody’s, released on Monday, has heightened fears that it may lower the country’s debt rating in March.
The rand dropped as much as 0.6% to R15.0546/$, the weakest level since February 10, and was 0.4% weaker at R15.0516/$ at 12:30pm. It was 0.3% weaker at R16.3004/€ and fell 0.6% to R19.6065/£. The euro was little changed at $1.0831.
Tuesday’s losses pushed the rand’s 2020 losses to 7.1%, making it the worst among 24 emerging-market currencies tracked by Bloomberg.
“We can expect more investor outflows if that rating is reduced to junk next month,” Oanda senior market analyst Jeffrey Halley said.
Should Moody’s downgrade SA to junk status, local bonds will fall off global bond indices and prompt automatic selling from institutional investors. That could put more pressure on the rand and constrain the SA Reserve Bank’s ability to support the struggling economy.
The Bank’s head of economic research Chris Loewald told MPs on Tuesday that SA’s risk premium is a major driver for monetary policy.
“The higher SA risk premium creates upward pressure on rates,” Loewald told a joint meeting of parliament’s two finance committees. “The lingering problem is upward pressure on rates arising from rising country risk.”
With Linda Ensor
Correction: February 18 2020
An earlier version of the story incorrectly said the rand reached a four-month low against the dollar. It is, in fact, at a one-week low.
Source: businesslive.co.za
