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Moody's downgrades SA as Rand firms after ECB decision on rates


  • Moody's cuts South Africa's debt rating to Baa2
  • Changes outlook from negative to stable
  • Rand still weaker against the dollar but has gained some ground on the euro

Moody's cuts South Africa's debt rating

Ratings agency Moody's Investors Service downgraded South Africa's debt rating to "Baa2" on Thursday, citing poor prospects for medium-term economic growth and rising public debt.

"Poor medium-term growth prospects due to structural weaknesses, including ongoing energy shortages as well as rising interest rates," was one of the key drivers of the downgrade, Moody's said in a statement. (

The rating agency's changed its outlook on South Africa to stable from negative.

Author: Aurindom Mukherjee


Moody’s downgrades SA

Weak growth, energy concerns, rising debt-to-GDP

Moody’s Investors Services on Thursday announced that it has downgraded the South African government’s debt rating by one notch to Baa2 due to poor growth prospects and rising public debt. The ratings cut puts Moody’s investment rating two notches above junk status, and on par with the ratings of Standard and Poor’s and Fitch. South Africa’s Baa2 rating is also on par with Moody’s ratings of Brazil and Russia.

National Treasury was quick to react and said in a statement that the state is committed to reduce the budget deficit and that poor prospects for economic growth remain a concern. "Government will continue to make the tough decisions that are necessary to address our challenges so we can build on the gains we have made over the past 20 years to improve the lives of our people," the statement read.

The ratings agency said the downgrade was primarily due to the poor medium term growth outlook due to structural weaknesses, electricity shortages and a further deterioration of the investor climate. The influential agency also said government’s debt-to-GDP ratio and the budget deficit would continue to rise.

The outlook on the sovereign rating was changed to stable from negative. Moody's also downgraded to Baa2 from Baa1 the rating assigned to the debt issued by ZAR Sovereign Capital Fund Propriety Limited. The downgrade will also lead to a range of downgrades of state owned companies closely linked to the sovereign rating.

Eskom finance director Tsholofele Molefe earlier said a further downgrade of the utility’s debt rating will increase finance costs by between 30% and 40%.

Sanral CFO Inge Mulder on Thursday told the Gauteng e-toll review panel that a further downgrade of the agency’s debt rating will see it at junk status, increasing borrowing cost and chasing away investors. Sanral’s Moody’s ratings review is scheduled for next week.

Author: Antoinette Slabbert and Ryk van Niekerk


Rand firms after ECB rates decision

The rand was weaker against the dollar late on Thursday but gained some ground against the euro after a decision by the European Central Bank (ECB) to keep key lending rates in the Eurozone at record lows.

While the ECB’s decision was largely expected given near stagnant growth in the Eurozone, the euro began to turn down when the bank’s governor Mario Draghi took to the stage at the press conference that followed the policy decision.

The European currency, which is shared among 18 member countries, sunk to fresh two-year lows against the dollar, reaching an intraday low of $1.2390 from its close of $1.2551 on Wednesday.

According to Rand Merchant Bank trader Thando Vokwana, the weakening of the euro reflected the market’s disappointment that the ECB had not announced additional stimulus measures to prop up economic activity in a region being stifled by persistently falling prices.

Last month the Bank of Japan widened its stimulus package, committing to purchase and extra 10-trillion yen of government bonds in a bid to stem deflation in the world’s third largest economy.

At 4.10pm the rand was at R11.1270 to the dollar, about 10c weaker than its overnight close of R11.0379. The local unit was also weaker against the pound at R17.7052 from Wednesday’s close of R17.6579.

Against the euro, the rand gained nearly 0.3% to trade at R13.8110 from its previous close of R13.8532.

Currency markets are expected to take further direction from US non-farm employment figures due on Friday.

Author: BDpro


Major currencies forex news - 4 November 2014
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