South Africa Rand Erases Loss as S&P Says Credit Rating Intact

  • Gordhan's budget won't `immediately' affect investment rating
  • S&P has South Africa on negative outlook, reviewing in June

The rand erased losses against the dollar after Standard & Poor’s said South Africa’s budget targets were in line with its forecasts and didn’t require an immediate credit-rating action.

The South African currency gained as much as 0.5% before trading little changed at 0.2 percent to 15.5967 per dollar by 5:24 p.m. in Johannesburg, erasing an earlier loss of as much as 1.1 percent. Yields on benchmark government bonds due Dec. 2026 dropped 6 basis points to 9.27 percent.

South Africa’s rating of BBB-, one level above junk, is “not immediately affected by the National Treasury’s 2016 budget,” S&P said in a statement on Thursday. The fiscal targets outlined by Finance Minister Pravin Gordhan on Wednesday weren’t reviewed by a ratings committee for action, it said. Gordhan pledged to bring the fiscal deficit down to 2.4 percent of gross domestic product over the next three years by curbing the civil service and raising taxes.

“The market is reading it as somewhat of a positive in the shorter term, which is why we’ve seen some of that strength come through in the rand,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg. “It doesn’t necessarily say that the ratings downgrade is off the table.”

The currency fell 2.4 percent on Wednesday after Gordhan tabled the budget as investors fretted over growth and revenue projections. While South Africa may be able to stave off a ratings downgrade in reviews by S&P and Fitch Ratings in June, that may simply postpone the downgrade to December, Nalla said.

“By December you’ll have a clearer sense of what’s actually happened with growth, you’ll have a clear sense in terms of whether the government is delivering on the stated consolidation in the budget,” he said.

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