The rand may weaken tomorrow following Moody’s decision to downgrade SA’s sovereign rating to junk status.
The credit rating agency, the last of the big ratings agencies that still had the country’s credit rating at investment grade, said its decision was based on the country’s deteriorating finances and poor economic growth prospects.
Bianca Botes, treasury partner at Peregrine Treasury Solutions, said the local currency would certainly plunge in the wake of Moody’s announcement.
“While the global currency market is closed, we will only see the reaction to the news once trading resumes on Monday,” Botes said.
“ The rand will in all likelihood be setting its sights on breaching R18 against the dollar.”
Moody’s estimated SA’s debt burden would reach 91% of gross domestic product by financial year 2023.
Raymond Parsons, economist at North West University’s business school, said the timing of Moody’s decision was unfortunate.
The government would now have to announce a massive assistance package to households, firms and vulnerable groups.
“South Africa should also be willing to seek international financial help. The International Monetary Fund is already offering financial assistance… to economies distressed by Covid-19.”
