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South Africa may avoid downgrades to junk in November - Reserve bank governor

South Africa

A narrowing current account deficit, improving economy and stable inflation should help South Africa avoid credit rating cuts in November, central bank governor, Lesetja Kganyago said in an interview, playing down concerns over the most recent cabinet reshuffle.

Growth in Africa’s most industrialised economy has slowed to a near standstill in recent years, hit by corruption and a lack of progress on sorely needed reforms.

Bitter infighting within the ruling African National Congress (ANC) has also sapped investor confidence and thwarted efforts to create jobs and reduce widespread poverty.

The engagements that we had with the rating agencies, we were able to deal with the credit concerns that they had raised.

“The engagements that we had with the rating agencies, we were able to deal with the credit concerns that they had raised,” Kganyago said.

Kganyago and Finance Minister Malusi Gigaba met the ratings agencies on the sidelines of International Monetary Fund meetings last week in Washington, hoping to convince investors that the economy is on the mend despite the tensions in the ANC.

The central bank targets inflation of between 3 and 6 percent. Despite a slight rise in September to 5.1 percent, Kganyago sees price growth remaining within the target range for the next two years.

The three major international ratings agencies – Moody’s, Fitch and S&P Global – all downgraded South Africa’s sovereign credit rating after President Jacob Zuma fired respected finance minister Pravin Gordhan in an abrupt cabinet reshuffle in March.

“Uncertainty can’t be a new normal. We have got to clear the uncertainty, restore business and deal with the credit concerns that we had identified – we have got the ability to put this economy back on a growth trajectory,” the Reserve bank governor said.

Fitch and S&P now rate South Africa’s foreign-currency rating in sub-investment, or “junk”, territory. But only Fitch has the country’s local-currency rating in junk.

But with Moody’s and S&P expected to review South Africa’s local-currency credit rating in November, some foreign investors are nervous.

If both downgrade the country to junk, that could trigger massive outflows from South African bonds of up to $12 billion.

Kganyago has headed the South African Reserve Bank since 2014, and his team has been praised for its credible response to high inflation and low growth amid the political turmoil.

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