Rand hovers near R15/$ as budget gloom persists

The rand was under the psychologically important R15/$ level on Thursday morning, but barely, as markets await Friday’s latest credit-rating assessment of SA by Moody’s Investors Service.

The local currency had slumped 2.35% against the dollar on Wednesday, its worst performance in over a year, after finance minister Tito Mboweni slashed SA’s growth forecast for 2019 to 0.5% and warned the budget deficit will continue to widen.

The budget’s current trajectory would see a combination of rising spending and falling income, and SA’s debt-to-GDP ratio could breach the 80% mark within the next 10 years, said Citadel chief economist Maarten Ackerman in a note. “This number would then send credit ratings agencies screaming, and almost certainly see South Africa suffer more ratings downgrades.”

Ratings agency Moody’s is set to deliver its latest assessment of SA on Friday, and is widely expected to lower the country’s outlook to negative.

Moody’s is the last of the three major agencies to hold SA’s debt at investment grade, and a junk status assessment from it would result in SA government bonds falling off global bond indices, prompting forced selling by institutional investors.

The rand was likely to continue to be on the ropes ahead of the Moody’s assessment, said TreasuryOne senior currency dealer Andre Botha in a note.

At 9.24am the rand was 0.155 firmer at R14.994/$, while remaining flat at R16.7411/€ and weakening 0.17% to R19.4072/£. The euro was 0.12% firmer at $1.1166.

The rand’s one-week implied volatility has shot up, standing at 16% on Thursday morning, a two-month high, and marking it as the most volatile emerging market currency tracked by Bloomberg.

The yield on the generic 10-year government bond is also at a two-month high, rising three basis points to 9.17% on Thursday morning. Bond yields move inversely to bond prices.

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