Rand weaker on rescue package funding worries

The rand was weaker early on Tuesday, reflecting worries over how the country will fund a R500 billion ($26.5 billion) rescue package for its bruised economy.

At 0710 GMT, the rand traded at R18.86 versus the US dollar, 0.4% weaker than its previous close.

The rescue package, announced last week, includes a R200 billion loan-guarantee scheme to encourage bank lending, R50 billion to top up social grants and R40 billion in unemployment benefits.

“South Africa remains fiscally vulnerable,” said Thu Lan Nguyen, emerging-market analyst at Commerzbank.

She said that despite the government’s approaching international financial institutions like the International Monetary Fund and World Bank it could take weeks for the formalities to be completed and the funds to flow.

South Africa’s economy was in bad shape before the coronavirus crisis started. This year’s budget deficit is forecast to reach an 18-year high and loss-making state firms like South African Airways and power utility Eskom are a drain on the public purse.

Since early March, the outlook has deteriorated, with the rand losing close to 20% against the dollar and government bond yields rising.

The yield on the 2030 bond was 2 basis points lower on Tuesday at 10.935%, reflecting a slightly stronger price.

On the Johannesburg bourse, the Top 40 Index was up around 0.8% in early trade, tracking gains on Asian stock markets.

Source: moneyweb.co.za