Developments in the Russia/Ukraine conflict were too strong yesterday to make an impression on the rand even as Finance Minister Enoch Godongwana delivered a maiden speech largely hailed for its positive connotations towards fiscal consolidation.
The rand, which had been trading in the red at R15.04 to the US dollar in midday trade, firmed up somewhat to R15.00 after the speech and closed weaker again at R15.07 due to overtures of conflict in the Russia/Ukraine standoff, which has bogged down markets for weeks now.
"However, the rand has been mired down by the Russian/Ukraine conflict, and news today of worsening tensions, with the potential for further escalation," said Investec chief economist Annabel Bishop.
Oil prices have been on an upward trajectory Brent crude oil prices up by more than 5 percent above $99 (R1 497.21) per barrel, and closer to $100 per barrel earlier this week.
Analysts said yesterday the 2022’s Budget Review saw a significant improvement in government’s debt-to-GDP projections and fiscal deficits. Over the medium-term, gross debt (GDP) is projected to now stabilise at 75.1 percent of GDP in 2024/25, which previously had peaked at 78.1 percent in 2025/26, placing South Africa on a firmer footing to avoid a downgrade from rating agency Moody’s given its negative outlook, which should now become a stable.
"The good news from the budget is being overshadowed, but includes deepened fiscal consolidation and the revenue overrun is being used to shore up state finances. Also as a consequence of the R182 billion revenue overrun from the 2021 Budget estimate for this fiscal year, and a R62bn overrun than the 2021 MTBPS estimate for 2021/2022’s revenue, the estimated budget deficit has dropped sharply to -5.7 percent year on year for this year," Bishop said.
This is from the Medium-Term Budget Policy Statement (MTBPS) of -7.8 percent of GDP, but is still substantially wider than the -3.0 percent of GDP limit for recognised fiscal health.
Pundits said overall, Godongwana posted a neutral to slightly positive budget and the rand should remain supported.
However, the government remains fixated on creating employment itself instead of allowing the private sector to be the primary job creator.
"The rand has taken this budget in its stride, trading relatively flat around R15.05/$. Focus for the local unit now returns to international geopolitical developments," said forex manager at DG Capital Forex, Matthew Axelrod.
Earlier this week, the Rand strengthened against the US dollar while consumer confidence in that country slumped to a five-month low in February, with fewer consumers planning to purchase homes, automobiles or go on vacations over the next six months amid concerns about the short-term economic outlook.
Bianca Botes, a director at Citadel Global, said measures that targeted Russia’s sale of sovereign debt abroad announced by US President Joe Biden – as the US and the EU start imposing economic sanctions on Russia over its continued aggression against the Ukraine – were working against commodities.
Commodities rallied as inflation threatens economic risks and concerns grow over supply shortages should the tension between Russia and the Ukraine continue to escalate."Markets seem to be getting a handle on the Ukraine-Russia debacle, and the rand, yet again, clawed back lost ground following choppy trade," she said.
BUSINESS REPORT ONLINE