ECONOMIC WEEK AHEAD: Market braces for bad news on credit rating
Credit-ratings agencies Moody’s Investors Service and S&P Global Ratings are releasing the outcomes of their scheduled reviews of SA this week, which may move the market and affect the rand.
Economists say SA’s debt will inevitably be downgraded to subinvestment grade, or junk status, after what they say has been a disastrous medium-term budget policy statement, which had not mentioned fiscal consolidation but projected a rise in the debt-to-GDP ratio.
Finance Minister Malusi Gigaba’s statement minibudget got a lukewarm reception from the ratings agencies, as it raised questions about the government’s commitment to narrowing the budget deficit.
Moody’s and S&P are set to release their verdicts at the market close on Friday. While Moody’s is the only agency that still has SA a notch above junk status, both have the country on a negative outlook.
NKC economist Elize Kruger said: "Given that S&P already assigned a negative outlook to both the local and foreign currency ratings in April, and knowing that they typically resolve an outlook within 12 months by either downgrading or changing the outlook back to stable, and given that recent developments ticked all their concerns, we consider them the most likely to change their rating on November 24."
However, she said S&P could wait to see what the ANC December conference delivered as well as Gigaba’s first budget in February 2018.
"As we believe SA is no longer worthy of an investment grade credit rating, we expect Moody’s to put SA on ‘credit watch’ on November 24, which essentially means that they flag their intention to downgrade ... but that they have up to three months to resolve it."
While Fitch Ratings has no set review date, economists expect an announcement before the end of November.
Novare economist Tumisho Gray said: "In recent weeks … jitters over the country’s credit health manifested in the rand moves and in the bond market. It is no secret that a move to junk status by Moody’s and S&P on the rand-denominated sovereign debt would impact negatively on the rand, bond yields, and consumer and business confidence."
On Wednesday, Statistics SA is due to release the consumer price index figures for inflation. This comes just ahead of the Reserve Bank’s monetary policy committee meeting’s announcement on Thursday.
BNP Paribas economist Jeff Schultz said the bank was likely to keep the rate unchanged at 6.75% in light of the credit ratings review on Friday.
Nedbank economist Johannes Khosa said the inflation outlook was still favourable, with consumer inflation expected to remain below the Reserve Bank’s upper target range for the year.