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Moody's gives SA a vote of confidenc... Unions heading for record year of stri... Bank likely to err on side of cautio... Lottery to scratch out the card... |
Moody's gives SA a vote of confidence
But after the recent market carnage, the Reserve Bank sticks to prudent policy, writes ANDREW GILL
Moody's Investors Service had placed the rating on review for possible downgrading in July, leaving SA with the prospect of having both Moody's and Standard and Poors' ratings pegged below investment grade. But Moody's said SA's political and economic leadership was "fully capable of manoeuvring through this difficult period" without changing its medium to long-term objectives. The news had an immediate positive effect on market views of SA, lifting the rand by over 10c against the dollar to R6.0350. The rand had fallen as low as R6.18 on Friday in the face of another round of global market turmoil. Moody's said the decision to confirm the Baa3 foreign currency rating was based on SA's increasingly disciplined macroeconomic policy architecture, the ability of the public, banking and private non-bank sectors to withstand the severe tightening of international liquidity, a sound banking system, the depth of the capital market and the stability of the political system. "In view of heightened global uncertainty, the SA monetary authorities have also modified their response to foreign exchange market instability," Moody's said. It said this had helped provide market stability and should continue to do so in the near to medium term. But Moody's warned that it was concerned about slow economic and employment growth and felt that a rigid regulatory framework in the labour market was an impediment to jobs growth. In line with Moody's view of SA policy, the Reserve Bank said on Friday it was not going to ease monetary policy until global markets stabilised. Deputy governor James Cross told Business Times that market upheaval, which wiped $4.3-trillion off world stock market values in just over two months, precluded a policy easing soon. "Given the unstable feel of the markets, it would not be prudent to ease now. We have to stick with it," Cross said. He was confident that renewed rand weakness did not appear to be the result of speculative activity against the currency, but rather the covering of long positions by investors nervous about global market direction. Cross said the next seven to 10 days would be a crucial test of global market health. The Group of Seven industrialised nations' finance ministers meet in Washington this weekend and this week sees World Bank and International Monetary Fund meetings. Brazil is also expected to be a major focus after today's elections. President Fernando Henrique Cardoso is expected to win re-election despite his warning that he might have to implement harsh austerity measures which his rivals say will bring widespread strife. The US and the IMF are reportedly putting together a $30-billion package to rescue Brazil's economy, the world's ninth largest. Cross said it was clear that SA would be one of the first emerging markets to benefit from any easing of global market tensions. He was unfazed by a R2.2-billion drop in September gold and foreign exchange reserves to R30.5-billion, pointing to the fact that the fall was the result of a stronger rand. One bright spot in the latest turmoil has been the strength of the gold price. The JSE's gold index rallied 9.5% to a 1282.8 close on Friday as gold held above the key $300 level.
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