South African bonds were slightly firmer on Thursday afternoon, despite a weaker rand, and the Reserve Bank’s decision on interest rates, expected shortly after 3pm. The Bank is widely expected to keep the repo rate unchanged at 6.75%, analysts said, but was likely to adopt a hawkish tone due to ongoing risks to SA’s inflation outlook. Included in these risks are the announcements by rating agencies Moody’s and S&P Global on Friday, which may result in further downgrades of SA’s creditworthiness. Should SA be downgraded, local bond yields could close up to 50 basis points higher, and the rand weaken by about 5% compared to the day before, after inter-day spikes, Investec Bank economist Annabel Bishop said on Thursday. Russia, Turkey, Brazil and Hungary experienced an average weakening of their currencies of about 13% when downgraded, compared to their values three months before. The effect in SA could be less severe than this due to SA’s sophisticated banking system, the prospect of...
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