Rand firms as markets welcome budget
The rand maintained its gains after finance minister Enoch Godongwana delivered what analysts viewed as a “balanced” budget.
With debt the biggest threat to SA’s fiscal stability, Godongwana said the Treasury would tap the Gold & Foreign Exchange Contingency Reserve Account (GFECRA) by drawing down R150bn to reduce borrowing costs. After many years of rand depreciation, the GFECRA now contains R506bn.
To further address fiscal pressure and support debt stabilisation, the government has proposed tax measures that will raise R15bn in 2024/25, including above-inflation increases in excise duties for alcohol products and tobacco, as well as an increase in the carbon tax and carbon fuel levy.
To provide relief to consumers, the minister said there would be no increases in the general fuel levy for 2024/25, resulting in tax relief of about R4bn.
“The rand has been surprisingly resilient, showing strength as an initial reaction to the government’s budget speech. The appreciation of the rand post the address, suggests some approval of proposals towards fiscal responsibility and environmental stewardship in 2024/25,” IG market analyst Shaun Murison said. “There is also the suggestion of relief for consumers that they aren’t being burdened too much further through what is a very difficult economic juncture.”
Nitrogen Fund Managers director Rowan Williams said the use of R150bn of the gains on the GFECRA to bolster the fiscal balance sheet was seen as bond market positive and also helped to improve rand sentiment.
At 5.39pm, the rand strengthened 0.24% to R18.8659/$, having touched an intraday best of R18.7475/$, its best level in almost three weeks. It firmed 0.17% to R20.4011/€ and 0.25% to R23.8046/£. The euro was little changed at $1.0814.
“Most of the other elements of the budget were in line with market expectations, with a continued commitment to fiscal consolidation with debt to GDP now expected to peak at around 75% from a previous forecast of 77%,” Williams said.
“The forecast of a primary budget surplus (spending before interest costs) was also taken positively, with interest rate-sensitive sectors like the banks and clothing retailers also reacting positively to the speech.”
The JSE all share index gained 0.11% to 73,029.61 points. The top 40 was little changed. SA listed property rose 1.72%, retailers 1.2%, banks 0.81% and financials 0.69%. The precious metals and mining index fell 3.37%, resources 1.63% and industrial metals 0.5%. The Dow Jones industrial average had lost 0.22% at 6pm, while markets in Europe were mixed.