Economists say the weakness in the rand shows that the currency is starting to factor in the possibilities of a credit downgrade. This comes after the release of the worse than expected economic growth data for the first quarter. The local currency weakened by around 1% against a basket of major currencies following the release of the data. GDP contracted by 3.2% in the first quarter and grew at 0% year-on-year. This is compared with growth of 1.4% in the fourth quarter of last year.
Head of equities at Aluwani Capital Partners Patrick Mathidi says the rand is pricing in a rating downgrade. “I think the rand is starting to look forward. You may recall at the end of March, we were due for a rating’s review from Moody’s which they then postponed to see how things will pan out. One of the things that they were worried about is around the growth of the economy. The number that came out is worse than expected; the rand is starting to price in some concern around a rating outlook that is likely to be downgraded especially looking at the number that has come out.”
Click related video below: