Rand weakens as Gordhan cuts forecast

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PravinBudget2013 Reuters. South African Minister of Finance Pravin Gordhan.

Johannesburg - The rand retreated, pulling back from a six-week high, after Finance Minister Pravin Gordhan lowered South Africa’s growth outlook and said gross government debt will probably climb over the next three years.

The Treasury forecast that the economy will grow 2.7 percent this year from an October estimate of 3 percent.

Gross government debt will probably increase to 48.3 percent of gross domestic product in three years’ time from 45.8 percent this year, risking further credit-rating downgrades if growth weakens.

The Reserve Bank last month unexpectedly raised its key interest rate for the first time in more than five years.

“The lower growth forecast for this year and the tighter fiscals imply that more of the burden for growth stimulation will fall on the central bank,” Abbas Ameli-Renani, a London- based emerging-markets strategist at Royal Bank of Scotland Plc, said in an e-mail.

“This supports our view that another rate hike in March is unlikely as things stand.”

The rand retreated 0.9 percent to 10.8271 per dollar by 3:35 p.m. in Johannesburg after advancing as much as 0.4 percent earlier. The currency closed at 10.7287 against the dollar yesterday, the strongest level since January 10.

Yields on bonds due December 2026 rose one basis point, or 0.01 percentage point, to 8.55 percent.

South Africa was downgraded by the three main credit-rating companies between September 2012 and January 2013 as growth slowed and debt increased.

Moody’s Investors Service and Standard & Poor’s have a negative outlook on South Africa’s rating, indicating the threat of a further cut.

International investors bought a net 2.81 billion rand ($260 million) of South African bonds on February 25, according to data from the Johannesburg Stock Exchange. - Bloomberg News

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