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The SA Daily 01 November 2019

Moody's outlook: at risk

  • The rand and SA bonds sold off after the MTBPS which revealed SA’s far worse fiscus over the Medium-Term Expenditure Framework (MTEF) and beyond. The rand is now over R15.00/$, and the10-year generic government bond yield was 9.19% yesterday. We now foresee a permanent deterioration in the fiscal trajectory relative to pre-MTBPS expectations.
  • Our R14.50/$ year-end forecast too is therefore now under review, although rand weakness is unlikely to be as severe and sustained that inflation departs from the target range. The 10-year generic yield which, prior to the MTBPS, we had expected to compress to 8.7% by year-end, is now likely to exceed 9%.
  • The Moody’s rating review is due out tonight. Now, after the MTBPS, we expect Moody’s to change the outlook on SA’s credit rating to negative, from stable, but to preserve what is now SA’s only remaining investment-grade rating.
  • A change in the outlook by itself won’t be market-moving because the markets are already discounting a downgrade. However, SA’s fiscal position now being far worse will likely have an enduring negative impact on both the rand and SA bonds.
  • SA’s fiscal risks and other concerns took the shine off yesterday’s pleasingly large positive trade surplus of R5.2bn for September (August’s surplus was R4.5bn).


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