Rand slips on dismal growth and downgrade fears

The rand was weaker on Tuesday morning, ahead of a busy week, with SA’s weak domestic growth prospects and load-shedding putting pressure on the local currency.

Ratings agency Moody’s Investors Service said on Monday that low growth and the limited scope to reduce spending will keep SA’s fiscal deficits elevated in 2020, with the prospect of  SA receiving a junk status rating from that agency one of the major risks to the rand in 2020.

Should Moody’s downgrade SA to junk status, local bonds will fall off global bond indices and prompt automatic selling from institutional investors.

“High unemployment, income inequality, and the social and political challenges they imply for policymakers are proving strong obstacles to the government’s plans to raise potential growth,” Moody’s said.

The global environment would be supportive of rand-denominated assets, but local data and event risks appear to be overshadowing the chance of short-run gains before a partial trade deal is signed between the US and China, said Rand Merchant Bank analyst Nema Ramkhelawan-Bhana.

At 11.40am, the rand had weakened against major currencies and was down 0.35% to R14.4403/$, 0.32% to R16.0737/€ and 0.18% to R18.7231/£.

Local focus this week is on the SA Reserve Bank, which is scheduled to make its latest monetary policy announcement on Thursday. The consensus is that the Bank will opt to keep the repo unchanged at 6.5%. 

Should the Bank cut interest rates, this would make local bonds relatively less attractive for investors seeking yield.

Gold was down 0.3% to $1,542.96/oz and platinum 0.42% to $968.98/oz. Brent crude was little change at $64.24 a barrel.

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Source: businesslive.co.za