Rand holds steady during the Budget as markets take heart
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CAPE TON - THE RAND HELD steady throughout Finance Minister Tito Mboweni's speech yesterday, indicating the market had maintained an overall positive response to the National Budget, despite a small dip in the currency, later in the day.
Citadel Global executive director Bianca Botes said it appeared the market had taken note of Mboweni stressing that “this is not an austerity budget". The rand gained about 0.9 percent against the dollar in intraday trading, prior to the speech. It dipped slightly towards R14.50 to the dollar level after the speech.
FXTM senior research analyst Lukman Otunuga said initially it seemed the Budget speech hit all the right notes as the rand appreciated against the dollar. However, gains were surrendered with the rand trading around R14.60 per dollar later in the day.
“Given the dollar is appreciating across the board, one would think the rand's weakness was based around external forces. However, the currency has depreciated against most emerging market counterparts today,” he said. At 5.15pm, it was trading 0.08 percent weaker at R14.65 per dollar.
Botes said Mboweni's warning that the state of the deficit remained dire and the country was facing the biggest tax shortfall in South Africa's history, “is obviously worrisome,” and that the rapidly growing cost of debt also represented a risk factor.
Optimum Invest economist Dr Roelf Botha said the Budget was “very good (for the markets) under the circumstances” and that R100 billion less than previous revenue shortfall projections had given Mboweni “the space he needed.” Botha said the economy appeared to be recovering faster than expected, barring the tourism sector, in line with the global economy.
Momentum Investments Head of Fixed Income Ian Scott said that it was “overall, a positive budget, which would be good for the nominal bond outlook,” although implementation would be key. "The fact that the funding requirement is now down to R547bn will be good for long dated bond yields, while the (R7bn) Land Bank bailout will contribute significantly to debt restructuring,” he said.
Otunuga said the idea of South African experiencing a smaller-than-expected Budget deficit for the current fiscal year was a welcome development “and should boost attraction towards the country's assets.”
Standard Bank economist Elna Moolman said “we suspect financial markets will still react positively to this Budget, given the continued overarching commitment to fiscal consolidation, the permanent reduction in the debt-to-gross domestic product forecast trajectory, and the sizeable lowering of weekly bond auction sizes, which would ease pressure on the bond market, and which also implied that Treasury was quite confident about the feasibility of its proposed fiscal plan.
“The fiscus has done as much as it could at this stage to stave off further rating downgrades, though ultimately this will depend on the execution of this fiscal strategy and the implementation of growth reforms,” said Moolman.
TreasuryONE currency strategist Adre Cilliers said the stock exchange, bond markets and foreign exchange markets had favoured the Budget speech due seemingly to the better than expected figures.