Rand weaker as budget risk raises second wave Covid-19 fears

The rand weakened early on Monday, reflecting the gloom in global markets as fears of a second wave of coronavirus infections around the world increased investor jitters ahead of a local emergency budget later this week.

At 0700 GMT the rand was 0.49% weaker at 17.40 per dollar from Friday’s 17.32 close, with the sell-trend that took root last week, pushing the currency to its lowest in June, set to continue until at least Wednesday’s budget.

Bonds also took a hit, with the yield on the government issue due in 2030 up 9.5 basis points at 9.315%.

Finance Minister Tito Mboweni is expected to paint a bleak picture in a revised budget that comes almost three months after government announced a R500 billion stimulus package leaning heavily on new borrowing.

The treasury said at the weekend that a $1 billion emergency loan from the New Development Bank – or BRICS Bank – had been approved. It was the first in a raft of financing from multilateral institutions set to push the budget deficit into double digits and debt past the 60% of GDP threshold seen before the coronavirus pandemic.

“Not only will treasury have to contend with a marked reduction in revenue due to the economic collapse, but Mr Mboweni will have to reprioritise R130 billion towards the fiscal stimulus plan (and) provide clarity on the R160 billion in saving from a reduction in the public sector wage bill,” analysts at NKC African Economists said in a note.

Global events also did little for sentiment towards risk-sensitive assets like the rand. Global Covid-19 cases rose past 8.8 million while a border dispute in the Himalayas between nuclear powers China and India in which at least 40 soldiers died also unnerved investors.