JOHANNESBURG (Reuters) – South Africa’s rand firmed against the U.S. dollar on Monday, recouping some recent losses after ratings agency Fitch surprised markets by not downgrading its credit view on Africa’s most developed economy.
Fitch said growing current account and budget deficits were restricting growth in South Africa’s economy but maintained its BBB rating, while Standard & Poor’s kept its rating at BBB-, one notch above junk status.
Analysts said this would provide only brief respite as they predicted South Africa’s credit status would be cut in the next six months.
At 0647 GMT the local unit firmed 0.16 percent to 11.5750 against the greenback, having sunk to a fresh six-year low of 11.7225 on Friday on fears of a downgrade that would increase the cost of borrowing.
Yields on local bonds were steady, with government paper due in 2026 unmoved at 7.915 percent after climbing to a 5-week high before the release of the credit reviews.
“The surprise was in how Fitch in earlier weeks had itself stated that South Africa was hovering closer to the BB (junk) median than its peers,” said ETM Analytics in a morning market note.
South Africa’s treasury defended its economic policies following the ratings reviews, saying a plan to hike taxes, freeze hiring in the public sector and reduce deficits would steer annual growth back on course to its target of 5 percent.
Market watchers expect the rand to come under pressure from a string of U.S data likely to confirm dollar strength due later in the session. U.S. November manufacturing output is due at 1415 GMT.
