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The decision by Moody’s Investors Service to maintain South Africa’s credit rating at investment grade could encourage the SA Reserve Bank to cut interest rates at its monetary policy committee meeting this week.
Moody’s affirmed South Africa’s foreign and local currency ratings at Baa3, the last investment grade rung, with a stable outlook.
S&P Global Ratings and Fitch Ratings last year downgraded the country to “junk” status.
In November, Moody’s placed South Africa on a 90-day review for a downgrade after the medium-term budget policy statement in October painted a dire picture for the state’s finances.
“Significant uncertainties remain, and risks are tilted to the upside. A continued recovery in growth would boost revenues and provide further policy space,” Moody’s said on Friday.
Treasury said: “Government fully recognises Moody’s assessment of challenges and opportunities the country faces in the immediate to long term. To improve South Africa’s investment and economic prospects, government continues to work diligently on practical steps to provide the necessary policy certainty such as the finalisation of mining legislation.”
In reaction to the decision, Business Leadership SA said: “South Africa’s growth outlook has improved markedly since the beginning of the year. For example, Goldman Sachs and the Organisation for Economic Cooperation and Development [OECD] have upwardly revised South Africa’s growth forecast. In its recent interim economic outlook, the OECD raised South Africa’s growth forecast to 1.9% for this year and to 2.1% for next year – higher than Treasury’s forecasts.”
Cas Coovadia, the managing director of the Banking Association of SA, said that another ratings downgrade would have increased the cost of borrowing and would have made it harder to secure investment.
“South Africa will only regain its investment rating from all three major credit ratings agencies once it achieves sustainable levels of higher economic growth and tackles its unacceptably high rates of unemployment, poverty and inequality,” Coovadia said.
Jabu Mabuza, co-convenor of the CEO Initiative, said that the decision was largely attributed the confidence-enhancing measures taken in key areas by President Cyril Ramaphosa.
