The rand plumbed a record low after the country lost its last investment-grade credit rating, and investors anticipated it may slide deeper into junk as the spread of the coronavirus decimates the economy.
The currency dropped as much as 2.5% to R18.09/US$, breaching 18 versus the greenback for the first time. It traded 1.8% down at R17.94 by 6.58am in Johannesburg, still the worst performance among emerging-market currencies tracked by Bloomberg. Yields on 10-year government bonds climbed three basis points to 11.73%.
Moody’s Investors Service on Friday cut its assessment of South Africa’s debt to sub-investment grade, saying unreliable electricity supply, persistently weak business confidence and investment, and longstanding structural labour market rigidities continue to constrain economic growth.
While cutting South Africa’s rating to Ba1, one level below investment grade, Moody’s kept its outlook on the debt at negative, which it said “reflects downside risks to economic growth and fiscal metrics”.
That could lead to a rise in the debt burden, increasing borrowing costs and weakening South Africa’s access to funding, it said.
The downgrade will cause the economy to fall out of the FTSE World Government Bond Index, which could prompt outflows of as much as $4-billion, according to Morgan Stanley. Foreign investors have already sold a net R46.8-billion of government securities this year. — Reported by Colleen Goko, (c) 2020 Bloomberg LP
