S&P and Bank still cautious about SA economy

JOHANNESBURG - The Reserve Bank and ratings agency S&P Global have countered market euphoria with a more measured view of SA’s outlook that emphasised that there were still big risks to its ratings and the rand.

As the rand hit fresh highs on speculation of an early exit for President Jacob Zuma, the Bank’s monetary policy committee kept interest rates on hold, despite a better inflation outlook, citing the risk that ratings agency Moody’s Investors Service could downgrade SA’s rating to junk status.

The rand firmed to R12.14 to the dollar by Thursday evening.

S&P’s Konrad Reuss told a conference in Sandton there had been no change in the key concerns - about growth, the budget and state-owned enterprise debt - the agency had flagged when it downgraded SA’s rating in November.

Reuss emphasised, however, that S&P had put SA’s rating on stable outlook for the first time since the downgrade cycle began and said new leadership had the opportunity to implement reforms that would improve the growth outlook. Most economists had expected the Bank to keep interest rates unchanged and Bank governor Lesetja Kganyago said on Thursday that five of the committee’s six members had favoured keeping rates on hold, with only one preferring a 25 basis point cut.

Kganyago, who was also appointed to chair the IMF’s international monetary and financial committee on Thursday, said some of the risks to the inflation outlook had dissipated in recent weeks, with the rand appreciating after the ANC elective conference and a lower than expected tariff increase that was granted Eskom.

However, a further downgrade to SA’s credit ratings “remains a risk and will depend on government’s response to the deteriorating fiscal position and commitment to credible growth-enhancing policies”, the committee said.-Business