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Fitch rates SA negative. How will the economy fare with Moody’s?

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South Africa’s credit rating edged closer to “junk” status on Friday after Fitch Ratings changed its outlook from stable to negative, while keeping its rating at BBB-, the lowest rung of investment grade.

It also comes on the day that Moody’s is expected to announce its ratings review of South Africa (currently two notches above sub-investment grade) and a week before S&P announces its review (one level above junk status with a negative outlook).

South Africa dodged a downgrade to “junk status” in both May and June.

Rating agencies have been sympathetic towards South Africa’s current lack of economic growth, influenced by weak external demand, which has had an impact on exports, as well as the drought, said Renier de Bruyn, equity analyst at Sanlam Private Wealth, told Fin24.

Fin24 reported earlier today that the South African Reserve Bank expected better growth and lower inflation in coming years, but governor Lesetja Kganyago said he was prepared for any shocks.

Speaking at the South African Summer Macro Conference, Kganyago said it was possible that a shock could make the positive scenario of better growth and lower inflation seem “fanciful and obsolete”.

“That is part of the job,” he said. “There are usually surprises, and we are always ready to adjust policy in line with new developments.”

His speech came a day after he announced that the repo rate would remain unchanged at 7% (prime lending rate at 10.5%).

Despite higher-than-expected headline inflation at 6.4% in October, the Sarb kept interest rates unchanged amid low economic growth and subdued consumer spending.

“We would like to see inflation expectations moderate so that they are more comfortably within the inflation target range, to help us permanently and structurally lower inflation and therefore interest rates,” Kganyago said on Friday. “We expect lower inflation to yield benefits, including for growth.”

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