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Rand inches firmer as risk demand tames budget speech jitters

The special budget, brought forward by the treasury in response to the coronavirus outbreak and President Cyril Ramaphosa’s R500 billion ($29 billion) stimulus package, is set to show ballooning deficit and debt in Africa’s most advanced economy.

South African rand.  Picture: Christa Eybers/EWN

JOHANNESBURG - The rand inched firmer early on Wednesday ahead of a much-awaited COVID-19 budget speech by Finance Minister Tito Mboweni, with a return of risk sentiment globally overshadowing investors jitters over the local economy.

At 0530 GMT, the rand was 0.17% firmer at R17.2100 per US dollar versus an overnight close of R17.2400 in New York, matching advances by other emerging currencies as upbeat data in Europe bolstered hopes for a global economic recovery.

The special budget, brought forward by the treasury in response to the coronavirus outbreak and President Cyril Ramaphosa’s R500 billion ($29 billion) stimulus package, is set to show ballooning deficit and debt in Africa’s most advanced economy.

But some traders said South Africa’s economic crisis was already known, with growth already in contraction in the last two quarters of 2019, and that investors were instead looking to cash-in on the high yield on the rand and local bonds.

That enthusiasm will be tested by the budget speech due at 1300 GMT, with a Reuters poll predicting a deficit widening to a record 14% of gross domestic product and an economic contraction of at least 6.5%.

“The emergency budget is likely to prove another disappointment to markets on Wednesday. Tax revenues have collapsed, foreign tourism is non-existent and debt ratios should reach record highs over the upcoming years,” Deutsche Bank’s analysts wrote in a note.

“While the market has certainly gotten used to disappointing budget updates, we think, the extent of deterioration in fiscal ratios will have an adverse impact on South Africa markets.”

Before the budget the national statistics agency publishes consumer inflation and retail trade data.

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