Rand under pressure after Moody's downgrade

Johannesburg - The rand dipped to its weakest level in over four weeks against the US dollar on Friday following a credit rating downgrade by Moody's in the previous session.

Moody's cited South Africa's poor prospects for medium-term growth and rising public debt as the main reasons for cutting Africa's most advanced economy's credit rating to Baa2 from Baa1.

Moody's did, however, adjust South Africa's outlook from negative to stable, while identifying ongoing energy shortages and rising interest rates as a lag on the economy.

The rand extended losses against the dollar to more than 1% after Thursday's downgrade, touching a session low of R11.2750/$, its weakest since October 6.

"The result of the downgrade was a knee-jerk move weaker on the rand," ETM Analytics economists said in a morning note.

"The Moody’s rating is now in line with that of Fitch, two notches away from junk and one above Standard and Poor's."

By 08:27, the rand traded at R11.2635/$, 0.04% off its New York close of R11.2590.

Yields on government bonds climbed, with the benchmark paper due in 2026 adding 9.5 basis points to 8.055%, a level it last reached on October 16.

"For the currency to shake off this trend of credit deterioration it would require a massive turn in government policy," the economists added.