Downgrade 'slow poison' for SA

People are unlikely to feel the effects of the credit downgrade immediately but it will mean higher interest rates on loans and a rise in petrol and food prices in the longer term.

S&P Global cut South Africa's sovereign credit rating to junk status yesterday.

The country was previously rated by S&P at BBB- with a negative outlook, the lowest investment-grade rating.

Chris Malikane, an associate economics professor at Wits University, said although "there is a lot of hype about the ratings agencies, the fact of the matter is that the average South African will not be much affected in the short term [by a downgrading]".

• Rand slumps nearly 3% to R13.74/$ on downgradeThe rand weakened substantially late on Monday after rating agency S&P Global cut SA’s credit rating to sub-investment‚ or junk status‚ at BB+ from BBB-.

But in the longer term the downgrading would lead to higher interest rates, making it harder for families to pay for vehicles and loans.

Households with capital sunk in investments and assets will be the most affected. There will be a decrease in their net worth.

But, Malikane noted, "most households in South Africa don't have the assets to be affected".

The rising cost of credit will affect most households, he said.

• Downgrade to junk status - what does it mean?While international markets worry about what a credit downgrade might mean for South Africa‚ an economist says most citizens were unlikely to feel a big impact immediately.

The rand will depreciate further, causing a rise in the price of imports.

Christie Viljoen, senior economist at KPMG, said the rating downgrade would result in an outflow of investment funds from bonds and equities.

"This, in turn, will adversely affect the value of the rand, increase the cost of imports, and keep inflation high for longer," Viljoen said.

Economist Azar Jammine said the downgrade would mean foreign investors wanting to buy bonds would be less inclined to buy South Africa's.

• BREAKING: SA’s sovereign credit rating downgraded to junk statusS&P Global Ratings cut South Africa’s sovereign credit rating to junk status on Monday following an emergency meeting over the weekend.

"This is bad news for the whole economy, including small business," he said.

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

Jammine said there was nothing new Finance Minister Malusi Gigaba could do to appease investors.

"He is seen as a Gupta acolyte," the economist said.