Reserve Bank governor Lesetja Kganyago. Picture: FREDDY MAVUNDA
Reserve Bank governor Lesetja Kganyago. Picture: FREDDY MAVUNDA

The rand slipped on Friday morning, taking a breather after racing to a fresh two-and-half-year high against the dollar in the wake of the Reserve Bank leaving interest rates unchanged.

As widely predicted, the monetary policy committee (MPC) flagged several factors that could have a negative effect on the inflation outlook, which is set to average 4.9% in 2018, better than a previous forecast of 5.2%.

Bank governor Lesetja Kganyago mentioned the uncertainty around the budget, which Finance Minister Malusi Gigaba is scheduled to deliver in February, as well as the ratings review Moody’s is set to deliver shortly thereafter.

Moody’s is the only major ratings company that still has SA’s debt rating at investment grade, after S&P Global Ratings and Fitch both relegated the country junk status in 2017.

The universal junk status is likely to trigger bond outflows, affecting the rand and the inflation outlook. But the extent of the damage in the event of a Moody’s downgrade remains unclear.

"We, and the broader market, have taken the MPC’s statement yesterday as not strong enough to switch our view as yet and forecast a rate cut in coming months," Rand Merchant Bank currency strategist John Cairns said in an e-mailed note.

At 9.28am, the rand was at R12.1502 to the dollar from R12.1312, at R14.8985 to the euro from R14.8474 and at R16.8946 to the pound from R16.8566

The euro was at $1.2262 from $1.2239.