Rand Gains for Second Day as Shrinking Budget Gap Eases Downgrade Concern
The rand gained for a second day against the dollar after Finance Minister Pravin Gordhan said a move to rein in the budget deficit ahead of schedule will prevent a credit-rating downgrade for Africa’s biggest economy.
South Africa’s currency appreciated 0.5 percent to 7.6982 as of 3 p.m. in Johannesburg. It climbed 0.2 percent against the euro to 10.2328. Bonds declined on concern rising oil prices will spur inflation.
Moody’s Investors Service and Fitch Ratings will probably remove their negative rating outlooks on South African debt, Gordhan said in an interview in Cape Town yesterday. The fiscal deficit is set to reach 4.6 percent of gross domestic product in the year through March 2013, less than an October forecast of 5.2 percent, he said in a budget speech.
“The budget was seen as fairly bullish,” Danny Pienaar, a currency trader at Tradition Financial Services in Johannesburg, said by phone. “I think the ratings agencies will be quite happy.”
Fitch lowered the outlook on South Africa’s BBB+ rating, the third-lowest investment-grade assessment, to negative from stable last month as government debt and unemployment increased. Moody’s cut its outlook in November, citing “heightened political risk.”
“We are doing enough as a country for them to be able to” to raise the outlook to stable, Gordhan said.
Fitch Ratings declined to comment, the company’s London- based spokesperson, Peter Fitzpatrick, said in an e-mailed response to questions. Moody’s sovereign credit analyst Kristin Lindow didn’t answer her phone when called after hours at her New York office and didn’t immediately respond to a message.
Business Confidence
The rand stayed stronger after German business confidence climbed more than forecast, spurring gains in commodity prices and stocks as investors sought out riskier assets. An index of commodity prices rose to an eight-month high.
“There is a bit of a risk-on feeling,” Pienaar said. “The euro is doing quite well, and that has also brought a bit of confidence to the rand.”
The rand often moves in tandem with the euro, which buys 22 percent of South Africa’s exports, according to government data. The correlation between moves in the two currencies over the past year is 0.677, according to data compiled by Bloomberg. A value of 1 would mean they moved in lock step.
Oil Prices
Yields on the nation’s 6.75 percent bonds due 2021 climbed four basis points, or 0.04 percentage point, to 7.87 percent as investors added to bets the central bank will raise interest rates this year to counter higher oil prices. Brent crude oil rose to its highest price in nine months in London today.
“The focus internationally has switched from Greece to developments in the oil market and economic data,” John Cairns and Josina Solomons, analysts at Rand Merchant Bank in Johannesburg, said in e-mailed comments. “Oil is a worry.”
South Africa’s consumer inflation rate rose to 6.3 percent in January, remaining outside the central bank’s target range for a third month and adding to pressure on Governor Gill Marcus to raise interest rates.
Forward-rate agreements starting in November, after the Monetary Policy Committee’s final meeting for this year, have gained 12 basis points in the past two days to 5.93 percent, the most since August.
To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net
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