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South Africa cuts main interest rate as inflation falls within range

Comments (0) Actualites, Africa, Economy

PRETORIA (Reuters) – South Africa’s central bank cut its main interest rate to 6.5 percent on Wednesday, in another boost for the economy after ratings agency Moody’s left intact its last investment-grade credit rating.

Traders and economists had expected the 25 basis-point cut in the repo rate after a slowdown in consumer price inflation to 4.0 percent in February, which put price growth well within the central bank’s 3-6 percent target range.

It was the first easing step since July and comes as South Africa rides a wave of investor optimism in the wake of President Cyril Ramaphosa replacing scandal-plagued Jacob Zuma as head of state in February.

The rand fell, however, as the rate cut dents somewhat the appeal of local assets versus developed-market peers. Banking stocks also fell.

South African Reserve Bank Governor Lesetja Kganyago told a news conference that inflation risks had subsided somewhat since January and that the bank had raised its economic growth forecast for this year to 1.7 percent from 1.4 percent.

But he said that the bank had not started “a journey of cutting” and that the future path of the repo rate would depend on data.

Four members of the Monetary Policy Committee voted to cut the rate while three wanted to keep it on hold, Kganyago said. There was no discussion of a more aggressive 50 basis-point rate cut.

Despite the central bank’s broadly upbeat tone, Kganyago said that the growth outlook remained relatively constrained and that the policy-setting committee would prefer to see inflation expectations anchored closer to the midpoint of its target range.

Analysts said they were not expecting to see a flurry of further rate cuts.

Razia Khan, an Africa-focused economist at Standard Chartered, said: “We think that today’s 25 basis-point cut was probably it in terms of South Africa’s easing cycle”.

Moody’s said on Friday that it expected to see a strengthening of South Africa’s institutions under Ramaphosa which could translate into greater economic and fiscal strength.

S&P Global, another of the “big three” ratings agencies, said it wanted to see stronger per capita growth before it would consider raising its credit rating.


(Reporting by Olivia Kumwenda-Mtambo and Nomvelo Chalumbira; Writing by Alexander Winning; Editing by James Macharia and Hugh Lawson)

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South Africa’s rand clings on to gains despite downgrade fallout

Comments (0) Economy, Latest Updates from Reuters

JOHANNESBURG (Reuters) – South Africa’s rand edged firmer on Wednesday, clinging on to recent gains despite continued fallout triggered by a Moody’s ratings downgrade last week and an anticipated interest rate hike by the U.S. Federal Reserve.

At 0640 GMT, the rand traded 0.2 percent firmer at 12.7350 per dollar compared to close of 12.7600 overnight in New York, bringing weekly gains to around 1.3 percent.

Following a one notch downgrade to its lowest sovereign investment grade on Friday, Moody’s cut the ratings of a dozen banks and companies including embattled power utility Eskom, further shaking confidence in Africa’s most advanced economy.

Quarterly business confidence and April retail sales due in the session are expected to shed more light on ailing economy. Growth shrunk 0.7 percent in Q1 2017 after a 0.3 percent contraction in Q4 of 2016.

Traders expect the U.S. central bank to increase interest rates by a notch when it concludes a policy meeting on Thursday, a move that could dampen demand for high-yielding emerging market assets.

South African bonds were flat, with the yield on benchmark 2026 government bond inching up 0.5 basis points to at 8.445 percent.

Stocks set to open higher at 0700 GMT, with the JSE securities exchange’s Top-40 futures index up 0.3 percent.


(Reporting by Mfuneko Toyana; Editing by Ed Cropley)


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Moody’s to visit South Africa next week to decide on ratings

Comments (0) Africa, Business, Latest Updates from Reuters

JOHANNESBURG (Reuters) – Ratings firm Moody’s will visit South Africa next week to decide whether to downgrade the credit status of Africa’s most industrialised economy to just one notch above sub-investment grade, the Treasury said on Wednesday.

South Africa’s Finance Minister Pravin Gordhan told local station Radio 702 that Moody’s informed him of their decision during his stop in London on an overseas roadshow to meet with investors and convince them the economy could be turned around.

“They will be in South Africa and meet with various stakeholders and get relevant information that will influence them either not to downgrade us or not to downgrade us,” Gordhan said.

The Treasury said in a statement that the “review visit will primarily serve to either affirm the current ratings or downgrade them.”

Gordhan is battling to boost South Africa’s growth and to persuade ratings agencies not to cut the country’s credit rating to junk following his appointment last December.

Late on Tuesday, Moody’s said it was placing South Africa’s Baa2 ratings on review for downgrade, citing the economy’s weak growth prospects and worsening fiscal position. [nFWN16G023]

“The review will allow Moody’s to assess to what extent government policy can stabilize the economy and restore fiscal strength,” the agency said in a statement.

Moody’s put South Africa’s Baa2 credit rating on a negative outlook in December, and is the only agency that does not have South Africa a step away from junk status.


(Reporting by Mfuneko Toyana; Editing by James Macharia)

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Moody’s says yuan use may benefit Zimbabwe, sees limitations

Comments (0) Africa, Business, Latest Updates from Reuters

HARARE (Reuters) – Moody’s said on Thursday plans by Zimbabwe to increase the circulation of the Chinese yuan could lift investment from the world’s second largest economy but may not be enough to strengthen investor confidence and improve competitiveness.

Zimbabwe abandoned its currency in 2009 after inflation reached 500 billion percent and adopted foreign currencies, anchored by the United States dollar, to tame runaway consumer prices and start an economic recovery.

The U.S. dollar is widely used, along with the rand currency of neighbouring South Africa and the finance minister and central bank governor said last month Zimbabwe would now increase the use of the yuan.

“The renminbi’s use will likely facilitate greater levels of foreign direct investment from and bilateral trade with China by reducing transaction costs and exchange rate risk,” Moody’s said in a report on Zimbabwe.

China has in the last few years invested more than $1 billion in Zimbabwe, becoming the largest investor after the Southern African nation was shunned by the West over its human rights record.

Moody’s, which has never rated Zimbabwe, said widespread use of the yuan could be limited by a population which has more confidence in the U.S. and is suspicious of other currencies after the traumatic experience with the Zimbabwe dollar.


(Reporting by MacDonald Dzirutwe; Editing by James Macharia)

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Moody’s downgrades Glencore’s ratings, keeps stable outlook

Comments (0) Africa, Business, Latest Updates from Reuters

(Reuters) – Commodities trader Glencore’s credit rating was downgraded to one notch above junk status by Moody’s Investors Service on Friday which cited likely weak mining market conditions over the next two years.

Moody’s downgraded Glencore’s ratings by one notch to Baa3 from Baa2 and said the outlook was stable.

“Our decision … reflects our expectations that the pricing environment in mining will remain unfavourable in 2016-17, making a return to the previous level of earnings unlikely,” Moody’s lead analyst on Glencore Elena Nadtotchi said in a statement.

“However, we believe that Glencore has the capacity to adjust its balance sheet to a reduced earnings level in order to maintain its investment grade ratings.”

Glencore said last week it remained focused on preserving its investment grade ratings.

Glencore has a higher debt load than its mining company rivals in part because its trading business borrows money to take large positions that can generate tight profit margins.

Moody’s said last month it was reviewing its rating of commodity trader Noble Group for a potential downgrade, citing the company’s weaker than expected liquidity profile and its high leverage. Noble’s current Moody’s rating is Baa3.

Switzerland-based Glencore came under pressure this year from investors and ratings agencies to cut its net debt of around $30 billion, one of the highest in the industry, as prices for commodities such as copper and coal hit multi-year lows.

In September, Glencore said it would take action to cut net debt, including asset sales, reduced expenditure, a suspension of dividend payments and raising $2.5 billion of new equity capital to protect its investment grade ratings after its shares fell to record lows.

It said last week it was targeting net debt of $18 billion to $19 billion by the end of 2016, lowering a previous target of $20 billion, after commodity prices tumbled further.

Glencore had previously said the plan would allow it to withstand copper prices of $4,000 a tonne, and the revised debt target was expected to help the company cope with copper below that level, even at $3,500 a tonne.

Copper hit a six-year low of $4,443.50 a tonne on Nov. 23, but has since recovered and was trading at $4,658 a tonne as of 1410 GMT on Friday.

“The stable outlook on the Baa3 ratings factors the expectation that Glencore will improve its leverage profile in 2016 and will continue to maintain strong liquidity,” Moody’s said.

The ratings agency also said an upgrade of Glencore’s ratings to Baa2 would be considered in the medium term once leverage was sustainably reduced.

Glencore makes about a quarter of its earnings from commodities trading, which had previously allowed it to withstand a steep fall in oil and metal prices slightly better than pure-play miners.

But the division came under the spotlight after it generated lower-than-expected earnings in the first half and the company cut its earnings forecast for the business.

Glencore has set guidance of $2.4 billion to $2.7 billion for the division’s earnings in 2016 and Moody’s said earnings below this target could place negative pressure on the Baa3 ratings.


(Reporting by Olivia Kumwenda-Mtambo; editing by Jason Neely and Jane Merriman)

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