Indeed, if the rand’s recent performance is anything to go by the ZAR will ultimately be immune to the impact of such a move by international ratings agencies.
Copy signals, Trade and Earn $ on Forex4you - https://www.share4you.com/en/?affid=0fd9105
A decline in the exchange rate is the single biggest threat to a positive return on this investment being returned.
Why Does a Credit Downgrade Matter?
Standard & Poor's credit rating for South Africa stands at BBB-.
The threat of a credit rating downgrade to subinvestment looms large after Standard & Poor’s changed its South Africa outlook from stable to negative in December on its rating which is one grade above junk status.
Moody's rating for South Africa sovereign debt is Baa2.
Fitch's credit rating for South Africa is BBB.
A credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of South Africa thus having a big impact on the country's borrowing costs.
For instance, fund managers who command trillions of dollars in assets will have set rules as to where they can invest client money, based on credit ratings.
Were significant amounts of money be withdrawn from South Africa by such funds in the event of a downgrade the rand would suffer heavily.
“The consequences of any downgrade are well known, both within the Treasury and now within government . . . we make no secret of it,” Pravin Gordhan, the finance minister, told the Financial Times. “We are very committed to restoring credibility in our fiscal path.”
Mr Gordhan was reappointed finance minister in December after President Jacob Zuma sent the South African rand into a downward spiral by firing well-respected finance minister Nhlanhla Nene.
The replacement, David van Rooyen, held the post for four days before Zuma bowed to the markets and appointed veteran Gordhan in a move to restore credibility in South Africa’s Treasury.
The mishandling of the finance ministry has seen many observers warn of a heightened the risk of a credit downgrade.