Moody’s diagnosis of the rand’s woes includes its weak policy credibility
SA and other emerging markets whose currencies have recently collapsed have many things in common, Moody’s said in a report on Friday.
These include weak policy credibility, twin current account and budget deficits, and currency reserves smaller than the external debt payments due over the next year.
"Besides Turkey, Argentina and, to a lesser extent, Russia, Brazil and SA have seen their currencies depreciate the most against the dollar, year to date," Moody’s said. "Over the past month, Argentina, Russia and SA have seen the greatest currency depreciation, while Zambia and Argentina's risk premiums have increased the most."
Relatively high wage settlements and ongoing uncertainty about the implementation of land reform are reasons for SA’s policy credibility problems, Moody’s said.
"Over the past month, portfolio outflows from SA have been the largest, out of those emerging markets tracked by the Institute of International Finance," the report said.
At the end of March, Moody's affirmed SA’s investment-grade credit rating and revised its credit outlook to stable from negative, saying the previous weakening of national institutions was gradually being reversed, which supports an economic recovery. Its next review is expected ahead of the medium-term budget policy statement in October.