Tags: s&p | rating | south africa

S&P Lowers Outlook for South Africa

Wednesday, 28 March 2012 11:50 AM

South Africa's rand weakened against the dollar on Wednesday after ratings agency S&P downgraded the country's outlook to negative from stable, citing structural economic and social problems.

The agency said South Africa's near-term political pressures had eased and the Treasury remained committed to fiscal consolidation, but added that problems such as high unemployment and a structural current account deficit persisted.

"The negative outlook reflects the potential for a downgrade if economic and social problems feed into the political debate in the run-up to the 2014 elections and consequently further put pressure on the policy framework," S&P said.

It reaffirmed South Africa's foreign and local currency ratings at 'BBB+/A-2' and 'A/A-1'.

The rand weakened to 7.6650 to the dollar from 7.6430 just before the S&P release. However, it recouped some of those losses to trade at 7.6482 by 1200 GMT. The currency, which had been weakening in earlier trading, was down some 0.7 percent after the announcement.

Government bonds also fell, with the yield on the three-year benchmark bond rising to 6.85 percent from 6.81 percent prior.

This is the third outlook downgrade in four months for Africa's biggest economy. Fitch cut its outlook to negative in January following a similar move from Moody's in November. Both agencies cited political pressure as the reason for their move.

The fact that S&P did not put South Africa's rating on credit watch meant the chances of a cut in the short term were limited, Nomura emerging markets analyst Peter Attard Montalto said.

"It is only the course of medium-run policy dynamics that will perhaps eventually lead to a downgrade. Market reaction is likely to be somewhat contained given the risks S&P talk about are already well known," Montalto added. 

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Wednesday, 28 March 2012 11:50 AM
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