NEWS

This Rating Downgrade Will Hurt SA In The Long Run

While the impact of the ratings downgrade will not be felt now. But in the longer term, petrol and food prices will go up.

04/04/2017 12:53 SAST | Updated 04/04/2017 13:06 SAST
Mike Hutchings / Reuters

The impact of the decision by ratings agency Standard & Poor (S&P) to downgrade South Africa to junk status on Monday night is likely to take a while to reach ordinary South Africans, but a rise in petrol prices and food prices can be expected in the longer term, according to The Times on Tuesday.

The paper spoke to Chris Malikane, an associate economics professor at Wits University, who said there won't be much impact for South Africans in the short term. But in the longer term, he said there would be higher interest rates, making loans harder to pay off.

Senior economist at KPMG told The Times that the downgrade would mean an outflow of investment funds from equities and bonds, adversely affecting the rand. This would also increase the cost of imports and raise inflation, he reportedly said.

Economist Azar Jammine told The Times that foreign investors would be less likely to buy South Africa's bonds, and that this was bad news for the economy.

"If the rand goes into free-fall and reaches R16 or R17 to the dollar, inflation will rise ... so will food prices and petrol prices," he told the paper.