Economists expect reprieve from Moody’s

The announcement by Moody’s Investors Service of the result of its scheduled review of SA’s sovereign credit rating is the economic story of the week, and most economists are in agreement that the country will avoid a downgrade.

A big factor that would have worked in SA’s favour is the February budget, which was well received by Moody’s, as well as by S&P Global Ratings and Fitch Ratings.

The Moody’s announcement is expected on Friday. The rating agency placed SA on review in November 2017.

If Moody’s did not downgrade in December, after the medium-term budget policy statement and before the ANC elective conference, “what justification would they have now given how much the political environment and confidence levels have improved?” asked FNB chief economist Mamello Matikinca.

Moody’s has SA’s foreign-currency and rand-denominated debt at investment grade. Fitch and S&P have rated SA junk.

A downgrade by Moody’s would result in SA’s expulsion from the Citi World Government Bond index.

A credit rating reprieve by Moody’s would “give SA a much-needed window of opportunity to start to deliver on the stated priorities, which should boost confidence and growth and over time enable SA to better address our socioeconomic challenges”, said NKC economist Elize Kruger.

Statistics SA will on Tuesday release the consumer price index for February, ahead of the Reserve Bank’s next monetary policy committee meetings at the end of March. Inflation is expected to be well contained in the 3%-6% target band, which may well result in a rate cut later in March.

At its last meeting, the Reserve Bank identified the rise in oil prices as an upside risk to inflation, as well as the effect of possible further sovereign credit rating downgrades.

Matikinca expects the February inflation number to print at 4.2%, as a result of lower oil prices and a recovery in the rand after the ANC elective conference outcome, which precipitated a fuel price cut.

“While the fiscal consolidation measures announced in the national budget, such as the increase in VAT, are expected to be inflationary in the near term, they are likely to be deflationary in the medium term as consumers adjust consumption patterns,” said Novare economist Tumisho Grater.

The Reserve Bank will also release its quarterly bulletin on Tuesday, which will include the current account for the fourth quarter of 2017.

On Thursday, Stats SA will release retail-trade sales figures for January.