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As forex markets closed on Friday (24 November 2017) S&P Global broke the news that it now viewed South Africa’s (SA’s) local currency debt as sub-investment grade (junk). The ratings agency also lowered the country’s foreign currency debt one notch lower i.e. deeper into junk territory.
Moody’s Investors service has extended some short term grace in terms of keeping both the local and foreign sovereign debt ratings for SA one notch above junk. The agency has however put South Africa on review for a downgrade, pending the outcomes of both the ANC elective conference in December and the Budget statement in February 2018.
Fitch released its ratings review unchanged for SA credit worthiness earlier in the week, although the agency has already downgrades the country’s local and foreign sovereign debt to junk earlier in the year.
The initial reaction to the news from S&P Global was a knee-jerk weakening of the Rand from around R13.90/$ to around R14.14/$. In truth the timing of the ratings announcement left little time for a true reaction in the domestic currency. At the time of writing (Monday 26th November) the rand had actually started to recover, trading back at R14/$. The clawback in strength is perhaps on the Moody’s decision to not to downgrade SA’s local currency debt (right now that is). Should Moody’s have followed S&P Global in downgrading SA debt to sub-investment grade levels, it would mean the exclusion of SA in the Citi Bank World Bond Index and in turn an estimated capital outflow of around $10bn.