South Africa is bracing up itself for a possible downgrading of the country’s sovereign credit rating to sub-investment grade by Moody’s. Since 2017, rating agencies Standard & Poor and Fitch have rated South Africa below investment grade. The only major rating agency that has rated South Africa at investment grade – one notch above junk – with a stable outlook is Moody’s. Moody’s is expected to release its review on 1 November 2019.
Though considered highly unlikely by most commentators, downgrading South Africa to junk status, by Moody’s, will have various repercussions. The country would lose eligibility for inclusion in debt gauges such as Citigroup Inc’s World Government Bond Index (WGBI). Such a downgrade will also have a negative effect on Rand pushing it back into the R15-area and maybe even R16.On the other hand, South Africa could see positive upward swing if Moody’s maintains its rating.
Reserve Bank governor Lesetya Kganyago observed that. “If it is reflected in the current financial market prices, then a downgrade should not have such an adverse effect on the South African financial assets because it is already priced in, but if it is not priced in, we are going to see an outflow of funds from the South African bond markets.”
