Rand weakens, bonds pare gains after budget

The rand was trading 0,37 percent weaker at 11,5145 to the dollar.

Weak economic growth kept revenues low and trimmed growth forecasts. Picture: Gadeeja Abbas/EWN.

JOHANNESBURG - The rand weakened against the dollar and government bonds pared gains on Wednesday after Finance Minister Nhlanhla Nene raised income taxes, cut economic growth forecasts and widened budget deficit estimates.

Nene said in a budget speech that South Africa will raise income taxes for the first time in 20 years as weak economic growth kept revenues low and trimmed growth forecasts as chronic electricity shortages strangled economic activity.

The minister also said the government would have to borrow from both domestic and global markets to plug the funding gap warning however that unsustainable debt levels would threaten its credit rating.

At 1500 GMT the rand was trading 0,37 percent weaker at 11,5145 to the dollar.

"It's trading in conjunction with its emerging market peers on the session and global drivers remain key for now," ET market analyst Jana van Deventer said.

"The bonds have sold off quite sharply off their intraday highs, but they are still stronger."

The yield on the 2026 benchmark was down 5 basis points to 7,605 percent after falling as much as 14 basis points earlier following Federal Reserve Chair Janet Yellen's comments on interest rates.

Traders are also looking forward to the release of local trade data on Friday for direction.