Does Moody’s really have a choice but to downgrade us?

By Danielle van Wyk

This month will see South Africa undergoing another ratings review, as ratings agency Moody’s is set to pay the country a visit. Following on the recent two downgrades by fellow agencies Standard & Poor’s (S&P) and Fitch, it begs the question whether Moody’s real has a choice but to downgrade us?

Uncertainty has taken its toll on the Rand already, as it weakened and sent bond yields higher last week, as market participants worried that a negative rating action would spark a selloff in bonds, reported Business Day.

With rife politically instability following on the recent cabinet reshuffle, and the subsequent downgrade by other agencies, according to experts, Moody’s has no room to budge, as they will most likely follow suit.

Coupled to that, is the fear that Moody’s might downgrade us sooner than their coming visit. “The original view was that Moody’s analysts would visit SA towards the end of May and then report during June,” but the possibility of an earlier decision looms, remarked Nomura analyst Peter Attard Montalto.

Moody’s currently has South Africa ranked two notches above junk status on Baa2. If we are cut by one notch only, we will retain our current investment rating.

If not, “a loss of an investment-grade rating from both S&P and Moody’s would result in the exclusion of SA from the Citi World Government Bond index, a benchmark index that attracts billions of rand in tracker fund investment,” added BD Live.

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