Rand slumps 2.5% as government expects wider budget deficit
The rand and government bonds extended losses after finance minister Tito Mboweni said the budget deficit is set to be two percentage points higher on average over the next three years.
The minister was presenting the medium-term budget policy statement (MTBPS) in parliament on Wednesday.
At 3.53pm, the rand had weakened 2.57% to R15.008/$, above R15 for the first time in two weeks. It had also fallen 2.5% to R16.6541/€ and 2.59% to R19.3061/£.
The generic 10-year government bond also suffered, with the yield rising 21 basis points to 9.121%. Bond yields move inversely to their prices. If it ends the day at this level, it will be its worst close in more than two months.
The initial forecast in February was for the government budget deficit to be at 4.2% in the current fiscal year. However, the Treasury said on Wednesday that the deficit in the current fiscal year will be 5.9%, averaging 6.2% over the next three years.
Mboweni ignored market expectations, announcing no set plans to restructure Eskom’s R450bn debt. The minister said the ailing power utility could receive further funding provided it meets certain operational requirements.
The Treasury revised the growth forecast to 0.5% in 2019 from 1.5% in the February budget — below the Reserve Bank’s forecast of 0.6%. FXTM global head of currency strategy and market research Jameel Ahmad said this has not helped investor sentiment. “It has painted the same old picture that the SA economy will continue to underwhelm — a theme for SA that has so regularly been expressed throughout the past decade.”
The latest mid-term budget comes just a few hours before the US Federal Reserve announces its latest interest-rate decision with markets having priced in a 25-basis-point cut. Ahmad said the rand could weaken further on Thursday, “if this MTBPS continues to hurt investor sentiment and the US Fed holds back from cutting interest rates”.
Source: businesslive.co.za
