Publications
Partners
Johannesburg - The rand retreated from its lowest level in six years after ratings agency Standard & Poor's affirmed South Africa's credit ratings and said the outlook for the country remains stable.
Reuters reported earlier that the local unit hit a six-year low against the dollar and bond prices slid on concern that ratings agency Fitch could downgrade the country's debt in its latest review.
The rand slumped nearly 1% to R11.7225/$ as of 17:28, its weakest since October 2008. It recovered to R11.6800 by 18:00 in volatile trade, and by 20:00 it was trading at R11.6000/$, better than Thursday's New York close of R11.6335.
According to the Reuters report the rand has lost nearly 3% against the dollar in the past week, its biggest weekly drop since early September, as investors worry that a renewed power crunch and recent weak economic data could trigger a credit downgrade from Fitch.
S&P, which like Moody's already cut South Africa's rating this year, said in its review on Friday of the country's long- and short-term foreign currency sovereign credit ratings that it expected a slight improvement in GDP growth in 2015-2017 after expected poor GDP growth in 2014. It also expected the Treasury to keep to its "hard expenditure ceiling" and thereby contain fiscal deficits and general government debt levels in the medium term.
Nevertheless, GDP growth remains low, current account deficits remain relatively high, general government debt sizable, and portfolio flows potentially volatile.
S&P is thus affirming its long- and short-term foreign currency sovereign credit ratings on South Africa at 'BBB-/A-3', it said.
"The outlook remains stable, reflecting our view that a slight rebound in GDP growth in 2015-2017 will help contain South Africa's fiscal and external balances within our current expectations," S&P said in a statement.
Fitch was also due to give the result of its review on Friday.
"The threat of a Fitch downgrade and likely very downbeat outlooks from both presents the risk of generating even more rand-selling interest," Tradition Analytics said in a note, according to Reuters.
"The crux of the decision will no doubt be the ... power constraints and the drag applied to growth and the fiscus through this, which we continue to see as a severe risk to the growth outlook in 2015."
South Africa this month has suffered its worst power shortages since 2008 due to creaking infrastructure, power plant failures and emergency maintenance.
The local currency was also hurt on Friday by broad-based strength in the dollar after stronger-than-expected US consumer sentiment data.
Government bonds had a bruising session, with the yield on the 2026 benchmark climbing to a month-high of 8.02% and closing at 7.975%, up 5.5 basis points from Thursday.
