Mboweni sees green shoots, markets skeptical: Rand under pressure after mini budget

Rand notes.
Rand notes.
Getty Images

The rand saw some volatility on Wednesday afternoon as Finance Minister tabled his medium-term budget policy statement before Parliament. 

The local currency had started the day at R16.20/$ but closed around 0.8% weaker at R16.34/$, having earlier breached R16.50/$. 

"The rand responded negatively to the address [...] before rebounding to the high R16.30s as the market continues to focus more on global events and sentiment than local factors," explained Bianca Botes, Executive Director at Peregrine Treasury Solutions. 

In his address, Mboweni said the debt to GDP ratio was expected to increase over the next few years, with government debt expected to reach R5.5 trillion in 2023/24.

Botes said while there had been some encouraging commitments from Treasury to ensure economic growth, a concrete plan of action was still required - as well as implementation.

"With government debt remaining elevated and economic growth remaining subdued, the market demonstrated scepticism of the minister's optimism and the green shoots he is witnessing in the economy," said Botes.

'Stating the obvious'

Mboweni allocated R10.5 billion for troubled state-owned airline South African Airways to implement its rescue plan, adding to R16.4 billion the Department of Treasury previously set aside over three years for SAA to repay its guaranteed debt and cover debt-service costs.

"While some good news about sourcing electricity supply from suppliers other than Eskom was reiterated, the R10.5 billion allocation to SAA is frowned upon," said Botes.

Andre Botha, Senior Dealer at TreasuryONE, said the medium-term budget "did not have any surprises, just stating the obvious that we will fund our economy with even more debt and that we need to be fiscally prudent. If this can be implemented is another story."

He added that while the MTBPS caused a little volatility for the local currency, most of the news was priced into the currency.

"The rest of the emerging market currencies are also on the back foot today as the US dollar powers ahead today. The [dollar] is on the front foot as the US election is coming into focus more and more."

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