Whether ratings agencies will cut South Africa's rand-denominated debt to junk status split economists in a Reuters poll, just three days before an announcement that could trigger a selloff in local bonds and currency. Downgrades to sub-investment grade could trigger forced selling of up to $12 billion of South African bonds and put more pressure on the rand.
Fitch has already downgraded ratings of debt priced in foreign and local currency to junk status. S&P Global has cut only the foreign debt rating and Moody's is still one notch above sub-investment grade in both cases. Thirteen of 25 economists surveyed on Monday said at least one of the major agencies would cut the local currency rating to junk on Friday. The other 12 said there won't be a downgrade.
If both S&P Global and Moody's cut local currency ratings to junk, South Africa will be ejected from Citi's World Government Bond Index (WGBI). "Following the medium term budget policy statement which did not deliver on fiscal consolidation, avoiding credit ratings downgrades on Friday has become less likely," wrote Annabel Bishop, a chief economist at Investec. However, South Africa is set for a potential game-changing period in coming months and credit agencies may wait.
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