Rand hits seven-month high ahead of Mboweni’s medium-term budget

South Africa’s rand strengthened further to around R16.10 in intraday trade on Tuesday (around 14:00) against the US dollar, a day before Finance Minister Tito Mboweni is set to deliver the country’s Medium-Term Budget Policy Statement (MTBPS).

It is the rand’s best level versus the greenback more than seven months. The currency last traded in this range on 9-10 March, which was couple of weeks before South Africa went into the initial ‘hard’ Covid-19 lockdown on 27 March.

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Read: Mboweni: Close the hippo’s mouth or face Argentina-like debt crisis

By the first week of April the rand plunged to over R19 to the dollar and some market commentators predicted that it could hit the psychological R20 mark due to the Covid-19 economic fallout and related market volatility.

However, the rand has strengthened  since then and on Tuesday firmed further by around 0.75% in intraday trade (R16.10). It has gain more than 5% against the dollar since the start of October.

The attention is now focused on Mboweni’s MTBPS on Wednesday. The “mini budget” could present downside risk to the rand, especially if South Africa’s fiscal deficit widens more than the National Treasury’s projections during the supplementary or emergency budget in June, which came in response to the Covid-19 economic fallout.

Read: SA’s budget deficit hits record 15.7% of GDP

In June, Mboweni revealed that the country’s consolidated budget deficit is forecast to more than double to 15.7% of GDP in the 2020/21 financial year. He noted that the “narrower measure, known as the main budget deficit” is projected to be 14.6% of GDP.

At the time, he also pointed out that the country’s gross tax revenue collection was significantly down due to the impact of Covid-19 and restrictions both locally and globally. He noted that government was expecting to miss its tax target by more than R300 billion for this year.

Source: moneyweb.co.za