S&P downgrades South Africa's credit rating to junk, Moody's may follow

South Africa has been downgraded to junk status by Standard & Poor’s following last week's Cabinet reshuffle which saw Finance Minister Pravin Gordhan axed. S&P on Monday cited political uncertainty as one of the reasons for the downgrade.

Ratings agency Moody's has placed South Africa on review for a downgrade, said it is assessing the economic impact of the changes to leadership in key government institutions and it is expected to announce its rating on Friday. A third ratings agency, Fitch is yet to announce its decision.

South Africa’s banking index fell to the lowest in six months after S&P's downgrade. Short-term volatility in bank stocks is likely to continue.  The rating cut increases the likelihood that lenders will have to battle declining returns and rising bad debts in the year ahead.

Zuma’s decision to boot his finance minister and load his cabinet with loyalists has drawn public criticism. A wider group of ANC leaders will meet Tuesday to discuss the cabinet reshuffle, while opposition parties are pushing for a vote of no-confidence in parliament.