Loadshedding could dim the lights on South Africa’s credit rating

This Rand report is brought to you by Sable International

The South African Reserve Bank (SARB) Monetary Policy Committee will meet on Thursday to discuss both the repo rate and the prime lending rate.

The repro rate is expected to remain unchanged at 6.75%, while the prime lending rate is expected to be 10.25%. Although the rates are expected to remain relatively stable, the ongoing electricity problem and fuel prices could put pressure on these rates next month.

Moody’s, the only major rating agency that hasn’t rated South Africa as junk status, will be delivering their review on Friday after both Fitch and S&P downgraded the country to below “investment grade” last year. Economists and investors fear the worst as the ongoing problems surrounding Eskom could be the final nail in the coffin for South Africa’s credit rating.

Moody’s is expected to change its outlook on South Africa’s debt from “stable” to “negative”. While this may be better than being downgraded to junk status, it means that a downgrade would be imminent sometime this year. A downgrade to junk status would prove crippling for the Rand and force investors to pull money out of the country.

The Rand felt the weight of last week’s load-shedding. Eskom has since announced that the power grids are looking better than they were this time last week and it doesn’t look like load-shedding will be implemented this week.

Market event calendar

Tuesday 26 March

• Smaller US data publishing: Housing price index, building permits, consumer confidence and housing start data all to be released and cause short-term volatility for the US Dollar.

Wednesday 27 March

• ECB speeches: Draghi, Praet, Lautenschläger, De Guidos and Mersch giving speeches regarding the European Central Bank.

Thursday 28 March

• US GDP: Measures the market activity and is a sign of a country’s economic growth.
• SA interest rate decision: Interest rate expected to remain at 6.75%. Any change will bring volatility to the Rand.

Friday 29 March

• US-China trade talks: The two biggest economies in the world will try to settle the current trade war.
• Moody’s credit rating: At this stage, anything but junk status will be a positive for the South African economy and the Rand. A change from “stable” to “negative” should see the Rand weaken slightly.

– Dean Reich