February 18, 2020 / 7:48 AM / 3 months ago

South Africa's rand ticks lower as Moody's stokes downgrade fears

JOHANNESBURG (Reuters) - South Africa’s rand extended losses on Tuesday to touch a fresh one-week low after rating agency Moody’s halved the country’s economic growth forecast, raising fears that the country may lose its last investment-grade rating.

Illustration photo shows a two-rand coin above a South African flag April 12, 2017. REUTERS/Thomas White/Illustration

The rand was 0.32% lower at 15.0280 per dollar, its weakest level since Feb. 10, by 0600 GMT.

Moody’s on Monday chopped its 2020 GDP growth forecast to 0.7% from a forecast of 1.5% set in September, partly due to the impact of rolling power outages on manufacturing and mining activity.

The ratings agency left South Africa on the brink of “junk” status in November last year after it revised the outlook on the country’s last investment-grade credit rating to “negative.”

The selling pressure on the rand had eased slightly in recent sessions after a more than 7% slide since January, as investors’ appetite picked up on easing concerns over the impact of the coronavirus on global growth.

“The South African economy likely entered a technical recession in H2 2019, while supply-side electricity constraints will cap medium-term growth,” said analysts at NKC African Economics.

“Everyone seems to be sitting back and waiting to see what happens next week, hoping that the government preserves what it is doing right (monetary policy) while addressing what it is doing wrong (fiscal policy).”

Ahead of the budget speech on Feb. 26, the statistics agency will publish the January inflation figures on Wednesday.

A Reuters poll expects the annual inflation to tick up to 4.4%, still well within the central bank’s target band and therefore, supportive of further rate cuts.

The bank is, however, set to move at a slower easing pace than its peers in the developing world to maintain the attractively high yield on local assets, especially the currency.

Bonds were slightly weaker ahead of an auction of 4.53 billion rand worth of vanilla issues. The yield on the benchmark 2026 bond was up 0.5 basis points to 7.995%.

In equities, Kumba Iron Ore reported headline earnings per share (HEPS) of 50.88 rand ($3.39) for the year ended Dec. 31, compared with 30.28 rand a year earlier.

Reporting by Mfuneko Toyana; Editing by Aditya Soni

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