Rand under pressure as Mboweni says Moody’s rating ‘not looking good’

2019-10-31 17:24 - John Viljoen and Paul Vecchiatto
Finance minister Tito Mboweni. Photo: Jan Gerber
Finance minister Tito Mboweni. Photo: Jan Gerber

The rand weakened as much as 1.2% against the dollar after Finance Minister Tito Mboweni said on Thursday afternoon that the fate of the country’s sole remaining investment-grade credit rating from Moody’s Investors Service was “not looking good.”

The currency pared its losses to be 0.8% weaker at R15.07/$ as of 17:00 in Johannesburg. The rand slumped as much as 3.3% Wednesday after Mboweni presented his medium-term budget policy statement. Yields on 2026 government rand bonds climbed 15 basis points to 8.59% after soaring 23 basis points yesterday.

Moody’s is scheduled to assess South Africa’s rating on Friday. Mboweni presented a rapidly deteriorating outlook in his budget, with gross government debt seen surging to 80.9% of gross domestic product in the 2028 fiscal year unless urgent action is taken. Fitch Ratings Ltd. said in a statement Thursday that a clear path toward stabilizing debt is still missing.

“Moody’s said they will release their view tomorrow and were looking very carefully at our fiscal stance,” Mboweni told lawmakers on Thursday. “Let’s see what they say, but I really hope they keep the rating the same. But it is not looking good.” He added that “Fitch is really not impressed with us and said you guys didn’t go far enough.”

Moody’s has a stable outlook on the rating. In a Bloomberg survey done before the budget presentation, nine out of 17 economists forecast that the company will change this to negative before the end of the year, which means the next move on the credit rating may be a downgrade.

President Cyril Ramaphosa Thursday said that the economy is in a “dire situation” and the government was intent on turning it around.

“We are still on our feet,” he told lawmakers in Cape Town. “We will resolve these problems. That I assure you.”

“I expect Moody’s to look at three things: the debt metrics, is our growth story credible and what are we doing on the expenditure side,” Dondo Mogajane, director-general at the National Treasury, said in an interview in Cape Town. “It remains a challenge and concern if we are not doing anything about it. So that is important on the expenditure, compensation of employees, that we engage with leaders. But let’s see what Moody’s do tomorrow.”