Johannesburg - The rand dipped against the dollar on Monday
and is expected to remain on a weaker footing after a Standard and Poor’s
ratings downgrade that caught the government by surprise.
The rand was trading at R8.7586 to the dollar at 06:58 GMT,
0.4% weaker than its close in New York on Friday.
Standard and Poor’s cut South Africa’s local and foreign
currency sovereign ratings one notch to BBB with a negative outlook late on
Friday, saying strikes and social tension could reduce fiscal flexibility and
Finance minister Pravin Gordhan said on Monday that the
action was “a surprise” coming just weeks before the government releases a
medium-term budget policy statement (MTBPS) meant to outline its spending plans
for the next two years.
He told a local radio station that Fitch would not make a
move until January, waiting for the outcome of an ANC internal leadership
conference that President Jacob Zuma is favourite to win despite major internal
“Yes, it was a surprise,” Gordhan said.
“Fitch, on the other hand, assured us when we met them that
they will follow their normal timeline, which is they will visit South Africa
in November, they will wait for the MTBPS, they will wait for the ANC
conference to be completed and then they will make their judgment call.”
Analysts said the rand, which tumbled to a three-and-a-half
year low of R8.995 a week ago, stopping just shy of the psychological level of
R9 to the dollar, is likely to remain under pressure.
“We initially have seen a massive selloff on the rand. That
poses upside risks to R9 again,” said Brigid Taylor, head of institutional
sales at Nedbank.
“With the continued negative outlook it does pose risks that
Fitch will follow but Moody’s might do the same to stay in line with the rest
of the rating agencies.”
Government bonds were also weaker on Monday, with the yield
on the 2015 paper up 10 basis points at 5.47%, and that on the 2026 instrument
gaining 14 basis points to 7.815%.