Moody warns to downgrade S. Africa's rating to junk level

Ratings agency Moody's warned of South Africa about its dismal economic performance on Tuesday, saying that its national rating to be downgraded if the official commitment to fiscal consolidation and debt stabilisation faltered.

In a research note, Moody's said its growth forecast for South Africa had been revised down to 2 percent in 2015, and would not reach to 3-percent-level as of 2017, even for the optimistic estimate.

Rising consumer inflation and a probable increase in U.S. policy rates could lead the South African Reserve Bank (SARB) to hike domestic rates by yearend, despite the struggling economy, Moody's said in the research note.

"Power outages have worsened dramatically in recent months, impacting industrial customers, businesses and households," said Moody.

The fomer African economy bellwether is battling to keep a yawning budget deficit in check by cutting spending, while also facing pressure from an ongoing power supply shortage, which is the worst since 2008.

Moody has lowered South Africa's bond rating to Baa2 from Baa1 last November, citing poor prospects for medium-term growth and rising public debt.

Baa2 is two notches from speculative, or "junk" grade. Some analysts are expecting Moody's downgrade comes soon so as to align its rating with the two other ratings agencies.

Standard and Poor's has lowered South Africa's credit status to one place above junk status last June. Fitch rated South Africa two notches above the speculative grade but with a negative outlook.

Later this week, Nearly 1.3 million public servants will vote on whether to accept a final wage hike offer of 7 per cent from the government, or embark on a nationwide strike which could dent the economy.

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