Rand weakens as markets eye budget

The rand broke a three-day winning streak on Monday, while the JSE was little changed in a thin trading session due to US markets being closed for the Presidents’ Day holiday.

Locally, all eyes this week will be on finance minister Enoch Godongwana’s budget on Wednesday. He has the daunting task of presenting a budget that keeps government expenditure in check in the face of a sluggish economy while finding the additional revenue needed to curtail rising debt.

Analysts expect the finance minister to touch on sluggish economic growth due to various internal challenges, including inadequate energy supply and deficient infrastructure in SA’s ports and rail network.

The 2024 budget comes during a crucial election year. It is arguably the most significant since the democratic elections of 1994 and will mark a pivotal moment shaping the country’s fiscal trajectory. President Cyril Ramaphosa has yet to announce the date for the elections.

“[The] rand weakened ahead of the budget as spending pressures persist,” said Investec chief economist Annabel Bishop. “Gross debt projections were raised in the medium-term budget, reducing the sustainability of government finances, worrying markets.

“In addition, given 2024 is an election year and the ANC is seeking to cling to power by making election promises which will place even greater expenditure pressure on the budget finances, markets worry about the worse outcome,” said Bishop. “Financial markets react negatively to increased borrowings, particularly when expenditure does not slow to fit the deterioration in revenue.”

At 6.08pm the rand had weakened 0.7% to R18.9744/$, having touched the worst intraday trade of R19/$. It had softened 0.58% to R20.4214/€ and 0.71% to R23.8789/£. The euro was 0.11% weaker at $1.0763.

TreasuryOne currency strategist André Cilliers said: “If fiscal consolidation is not adhered to, the potential is for the rand to weaken further.”

Globally, recent data in the US dampened investors’ hopes that the Federal Reserve would begin cutting interest rates as early as March. But recent data showing the world’s biggest economy remains strong and inflation high led to traders reconsidering their rate cut projections.

Meanwhile, the hope is that the economy will remain resilient despite the challenge of high interest rates. That would allow companies to deliver growth in profits that could help prop up stock prices, Bloomberg reported.

The JSE all share and the top 40 were little changed, with the former at 73,580 points. Markets were mixed in Europe.