Rand braves the Shockwaves of further Downgrades

Moody’s has yet effected another downgrade in credit ratings, this time with regard to the Banking Mafia in South Africa, South Africa’s “cartel extraordinaire”, and despite their extortion of their customer base still not good enough in the world-wide context.

h3 Economic Strategy?

Finance Minister Malusi Gigaba has put up a brave face in the midst of all the negativity and is talking bullishly about returning South Africa back to investment grade. The problem, as it’s been since he took office, is that there is no clear indication of exactly what the strategy will be to do so as he has got – similar to his previous position – no real plan except to enjoy the perks that come with his position. The way he and other members of the Government are pushing harder down the lines of a left-leaning ideology is exactly what the rating agencies are fearful of, and yet, when Gigaba speaks of radical economic transformation, that appears to be exactly what he is alluding to. But Redistributive Policies on their own are simply not enough. At some point, the authorities will need to accept that looking after
the factors of production that generate the growth in the first place is just as, if not more important.

h3. Rand Performance

But it has been a relatively positive start to a shortened trading week with the ZAR immediately shrugging off the disappointment of the further credit ratings downgrade and all the negative press that comes along with that. The government has paid lip service
to the Moody’s decision and has made sure that all the press covered the fact that they are concerned and disappointed. Ironically, the weak growth is in large part a reason for the performance of the South African Rand. Whether one thinks back to 2002-2003, or 2009-2010 or now, the Rand tends to perform best in a weak growth-environment. It may sound counter-intuitive, but there is a good reason for this and those reasons apply to the current environment, which is characterised by weak consumption and equally weak investment. As a consequence the economy is living within its means for a change and thus dis-saving a lot less than usual.

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