Rand weakens 20c to the dollar as market digests budget speech
The announcement that the government will increase borrowing weighs on the rand, which is also pressured by a weak euro
The rand weakened against major global currencies on Wednesday afternoon, slowly grinding lower as the markets digested the medium-term budget policy statement (MTBPS).
The local currency erased earlier gains and weakened about 14c to the dollar as the speech got underway, with the statement including lower economic-growth forecasts, higher budget-deficit targets, and promises of drastically increased government spending.
At 2.30pm, the rand was at R14.3907 to the dollar from Tuesday’s close of R14.2585, having earlier reached an intra-day best of R14.1454. The local currency was at R14.18 to the dollar as finance minister Tito Mboweni began speaking.
At the same time, the benchmark R186 government bond was bid at 9.14% from 9.155%, while the rand was at R16.3933 to the euro from R16.3567 and R18.5906 to the pound from R18.5091. The euro was at $1.1392 from $1.1471.
The budget deficit is set to jump to 4% in the current fiscal year, up from a 3.6% projection in January, Mboweni said. This means overall debt as a percentage of GDP will continue rising, reaching 59% at the end of 2022, from 50.7% in the 2016-2017 financial year.
The budget was “candid and disappointing”, said Nedbank strategist Mehul Daya, with the budget and global events on the day serving as a “double whammy” for the rand.
The rand and South African bonds are facing both local and external headwinds, including a stronger dollar and tighter global financial conditions, he said.
The government plans to increases its long-term issuance of debt by 33% to R2.9-trillion by the 2021-2022 fiscal year.
Globally, the euro was under serious pressure after a flash eurozone purchasing managers index (PMI) missed expectations. The rand usually tracks the euro.
The rand has been somewhat range-bound this week, with analysts citing the budget statement as a factor in investment caution, while significant risk events also loom on Thursday and Friday. The European Central Bank (ECB) announces its latest stance on monetary policy on Thursday, while Friday sees the release of US GDP data.