THE RAND opened the week at a near two-week high yesterday, breaking below the R15 mark to the US dollar as risk appetite in the markets improved and investors wait for Finance Minister Enoch Godongwana’s first medium-term budget policy statement (MTBPS).
At its strongest yesterday the rand reached R14.93 to the dollar before retracting to R15.02 in the afternoon.
TreasuryONE currency specialist Andre Cilliers said risk appetite had grown ahead of the MTBPS on Thursday and emerging markets currencies were on the front foot after the US Federal Reserve and Bank of England maintained the dovish stance last week.
“A sustained break of the R15 level will bring the R14.85 target into play. This week we have Finance Minister Enoch Godongwana’s MTBPS to look forward to,” Cilliers said.
Investors will be looking to Godongwana for concrete plans to rein in debt and reduce anticipated budget shortfalls.
Old Mutual Investment Group economist Johann Els said that Godongwana should deliver a budget that prioritises fiscal consolidation by recommitting government to the agreed public sector wage bill savings. He said Godongwana must resist populist calls for additional unaffordable spending such as a basic income grant.
“The biggest fiscal risk sill stems from expenditure pressures, the extent of which may only become clear with policy certainty,” Els said. “We wish Minister Godongwana well in leveraging the lower-than-forecast debt profile and improved growth outlook to substantially reduce our fiscal risk going forward.”
There are also growing expectations that the SA Reserve Bank (SARB) will likely soon begin the process of tightening monetary policy amid accelerating inflation. It warned in September of upside risks to its inflation outlook, including higher energy costs which have hit record highs.
The rand has seen some volatility in recent weeks linked to domestic politics, intense power cuts and uncertainty in US monetary policy.
Investec chief economist Annabel Bishop said yesterday that neither the rand nor investor confidence had ever fully recovered since the removal of Minister Nhlanhla Nene in December 2015.
BUSINESS REPORT ONLINE