Rand weakens ahead of the Budget

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NewRandMoney

Reuters.

Johannesburg - The rand weakened against the dollar for the first time in five days before Finance Minister Pravin Gordhan presents his budget amid a slowing economy that is curbing tax revenue.

South Africa’s currency fell as much as 0.5 percent to 8.8618 per dollar and was trading 0.4 percent down at 8.8573 by 12:11 p.m. in Johannesburg.

Yields on 10.5 percent government bonds due December 2026 were little changed at 7.23 percent.

Gordhan gives his fourth budget speech at 2 p.m. in Cape Town, against a backdrop of slumping exports to Europe and strikes in the mining industry that curbed economic growth and prompted three credit-rating downgrades.

Gordhan, 63, will probably maintain his deficit target of 4.5 percent of gross domestic product in the year through March 2014, according to the median estimate of 11 economists surveyed by Bloomberg.

“The weakening is in anticipation of the budget and probably shows that it will be disappointing,” Stephen Meintjes, head of research at stockbroker Imara S.P. Reid, said by phone from Johannesburg.

“He should actively try to decrease the budget deficit.”

Gordhan’s political ingenuity faces a “big test” if he attempts to cut the deficit with the government wage bill increasing at a higher rate than inflation, Meintjes said.

“The government faces notably less room to manoeuvre due to the still uncertain macroeconomic backdrop and the elevated ratings risk,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments.

The speech “will most likely focus on infrastructure spending and job creation,” Cairns said.

Africa’s largest economy expanded 2.5 percent last year, down from 3.5 percent in 2011, Statistics South Africa said yesterday. - Bloomberg News


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