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Johannesburg – The rand which was unaffected by the Reserve Bank’s decision to keep rates on hold on Thursday, weakened to R14 to the dollar on Friday morning ahead of ratings decisions scheduled for the day.
The rand remained below R14/$ following the rates decision which markets had expected would remain at 6.75%, and opened at R13.88/$ on Friday. It weakened to R14.01 to the greenback by 12:00.
“Domestic event risks, including rating agency reviews and the economic policy implications of the ANC electoral conference, are likely to dominate rand movements over the coming weeks,” Reserve Bank Governor Lesetja Kganyago said at the Monetary Policy Committee (MPC) announcement.
Kganyago emphasised that downgrades remain a risk to the rand. “Such an event could trigger significant sales of domestic bonds by non-residents. Ratings reviews are expected imminently, but the extent to which any possible downgrades may already be priced in remains uncertain.”
Moody’s and S&P are expected to give their ratings assessments on Friday. On Thursday, Fitch maintained the junk rating with a stable outlook.
Gerard van der Westhuizen, dealer at TreasuryOne, in a report explained much of the rand’s movement on Friday will be determined by the outcome of the ratings assessments.
“The majority believe that they (both S&P and Moody’s) will leave the local currency rating where it is for the moment, but if this is not the case Black Friday might spill into the currency market and we will be in for an interesting time.”
EasyEquities trading specialist Musa Makoni echoed views that much of the rand’s movements depend on the ratings decisions. The overall sentiment is that ratings agencies hold off making a decision until after the ANC elective conference, he told Fin24.
Since the last MPC meeting in September, the rand depreciated 3.6% to the dollar, its weakest point was R14.55/$ in mid-November.
“Factors that impacted on the rand during the period included the ongoing uncertainty with regard to the outcome of the ANC electoral conference in December, concerns about a faster pace of monetary tightening in the US, the negative reaction to the Medium Term Budget Policy Statement and speculation regarding the introduction of free higher education in South Africa,” said Kganyago.
He warned that the currency could be weaker in 2018 in the face of higher oil prices, as well higher wage inflation.
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