Following South African President Cyril Ramaphosa’s announcement that a nationwide lockdown is set to commence from Thursday, 26, March night at midnight for 21 days ending at midnight on 16 April, the rand is likely to be hurt by this news as production slows and investors flee from the currency.
The South African currency was already extremely weak before the announcement, but now faces 21 days of next to zero productivity.
Last week, the South African Reserve Bank (SARB) cut interest rates drastically by 100 basis points from 6.25% to 5.25%. The rand had been suffering amid the pandemic, particularly against the US dollar. This past week, the dollar gained strength against most currencies. This is most likely due to the Federal Reserve’s ability to stimulate its economy, which has led investors to see the greenback as a haven, leaving the riskier assets and emerging market currencies suffering.
The rand being a proxy for emerging markets, has caused it to plummet into untouched territories, trading at R17.87 to the dollar on Monday, 23 March, 2020.
On Friday, Moody’s is expected to review its credit rating on the South African economy. South Africa could lose its last investment grade credit rating. If a downgrade were to occur, South Africa can expect to see heavy outflows, harming the rand even further.
Moody’s is not obliged to provide an updated rating and due to the current circumstances, there’s a possibility that the global credit ratings agency will postpone it.
