The rand was quoted stronger in early trading hours on Monday after the country clung to its last investment-grade credit rating.
Moody’s Investors Service announced that it had decided not to downgrade the country’s credit score to junk, although it did reduce the outlook to negative. This came even after the country released forecasts last week that showed its financial situation is rapidly deteriorating.
The US dollar was quoted as much as 1.2% lower against its South African peer at R14.79 per greenback by 09:00 on Monday. Last week, after a disappointing medium-term budget statement, the rand hit R15.16.
Moody’s held the nation’s foreign- and local-currency readings at Baa3, one step above speculative grade. The nation is already rated below investment grade at S&P Global Ratings and Fitch Ratings, both of which shifted its status to junk in 2017.
If Moody’s cuts South Africa’s rating, the country would lose its place in the FTSE World Government Bond Index. Exiting it would spark an investor sell-off and outflows of as much as R225 billion, according to Bank of New York Mellon Corp., at a time when the nation needs portfolio investment to finance its persistent current-account deficit. A downgrade would also raise borrowing costs, complicating the government’s efforts to balance the budget.