The rand rose strongly in early trade on Monday, as investors were relieved that the country had escaped a downgrade to “junk” status from ratings agency Moody’s after the market had closed on Friday.
At 0655 GMT, the rand traded at R14.8100 versus the US dollar, around 1.5% stronger than its previous close.
Moody’s kept South Africa’s sovereign debt at ‘Baa3’, the lowest rung of investment grade, but revised the outlook on that rating to “negative,” citing a deterioration in the economic growth outlook and rising debt.
Moody’s is the last of the big three international ratings firms to have South Africa in investment grade, and a downgrade on its rating could have triggered billions of dollars of outflows.
“Many in the market had feared a full-blown downgrade,” said George Glynos, head of research at ETM Analytics. “Moody’s has given us a temporary reprieve.”
The decision to keep the rating at ‘Baa3’ for now raises the stakes for Finance Minister Tito Mboweni’s February budget speech.
The Johannesburg Stock Exchange also opened firmer on Monday, with the All-share index up 0.6% and the Top-40 index up 0.7%.
The rand and government bonds slumped last week after Mboweni’s bleak medium-term budget statement, which slashed this year’s growth forecast to 0.5% and showed government debt racing to more than 70% of gross domestic product by 2023.
Unless major reforms are announced in February, Glynos said a downgrade to sub-investment level from Moody’s was probable.