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Forex - South African rand lower after ratings downgrade

ForexApr 04, 2017 06:18AM ET
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© Reuters. South African rand suffers fresh losses after ratings downgrade

Investing.com - The South African rand suffered fresh losses on Tuesday after the country’s credit rating was downgraded to junk status by ratings agency Standard & Poor’s.

USD/ZAR hit highs of 13.94, the most since November 1 and was last at 13.79, up 0.75% for the day.

The rand ended Monday’s session down more than 2% after S&P cut the country’s credit rating to BB+ with a negative outlook from BBB minus.

The ratings agency warned that political instability, including the recent sacking of finance minister Pravin Gordhan, was endangering the economy.

S&P also cited concern over government debt levels, in particular noting the high level of borrowing by state energy firm Eskom.

Gordhan was sacked by Prime Minister Jacob Zuma in a cabinet reshuffle last Thursday and replaced by home affairs head Malusi Gigaba.

The pair had clashed in recent months; with Gordhan under pressure from Zuma to increase government spending and borrowing that he says will help tackle racial inequality and widespread poverty.

The downgrade is likely to make it more expensive for South Africa to borrow money on the international financial markets, as lending to the country would be viewed by investors as riskier.

On Monday, ratings agency Moody's placed the country’s debt rating on review for a possible downgrade later this week.

South African government bonds were also sharply lower, as yields on 10-year bonds rose to 9.03%, their highest level since the aftermath of the U.S. election in November. Yields rise when bond prices fall.

Forex - South African rand lower after ratings downgrade
 

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