South Africa’s rand was flat in early trade, having eked out some small gains overnight after the central bank kept lending rates unchanged, with investors now opting for caution ahead of expected credit rating reviews later in the session.
At 0645 GMT, the rand ZAR=D3 was 0.08% weaker at 15.3950 per dollar, a touch softer from where it closed overnight but well under the key 15.50 technical mark it has struggled to clear all week.
The rand hardly budged after the Thursday’s decision by the Reserve Bank (SARB) to keep rates at a record-low 3.5%, in line with market expectations. bank’s signal of an end of its easing cycle that had seen 300 basis points of reductions this year seemed to spur some buying later on.
Investors have demanded a high premium to hold local assets, due to the bleak economic outlook, and a still relatively high repo rate ZAREPO=ECI gives them that.
Credit reviews by Moody’s and S&P‘s expected this evening however kept enthusiasm at bay.
“Should these two ratings agencies provide an update today, which they are in no way obligated to with a postponement also an attractive option to them, it is unlikely to be ZAR-bullish,” said economists at ETM Analytics in a note.
The two agencies, along with the other “big three” firm Fitch, rate South Africa’s debt at subinvestment, or “junk”.
Only S&P has the country on a stable outlook, while the other two have negative outlooks, suggesting the next step is a downgrade.
“Both agencies have fired warning shots in recent months, suggesting Finance Minister Tito Mboweni’s MTBPS (budget speech) did little to persuade them that SA is on the path to fiscal salvation,” said analysts at ETM.
Bonds were firmer. The yield on the benchmark 2030 government issue ZAR2030= was down 6 basis points to 8.780%.