The rand strengthened for the first time in three days after South African Finance Minister Pravin Gordhan outlined plans to restrain spending over the next three years to help restore confidence in Africa’s largest economy.
The currency gained as much as 1.5 percent to 8.6540 per dollar and was trading at 8.6934 as of 3:46 p.m. in Johannesburg, the best performer of 16 major currencies tracked by Bloomberg. Yields on 13.5 percent bonds due September 2015 dropped two basis points to 5.45 percent, while rates on 6.75 percent securities due March 2021 rose three basis points to 6.67 percent as Gordhan said he will continue with a plan to refinance short-term debt by selling longer-maturity bonds.
South Africa didn’t raise three-year spending targets for the first time since 1998, with Gordhan ordering government departments to cut back on “wasteful” expenditure as rising debt levels put the nation under increased scrutiny from rating companies following the first downgrades since the end of apartheid by Standard & Poor’s and Moody’s Investors Service.
“Hopefully the ratings agencies and foreign investors watching it took it positively,” Brigid Taylor, the head of institutional flow sales at Johannesburg-based Nedbank Group Ltd. (NED), said by phone. “It doesn’t change the fact that we are walking quite a sensitive path and it’s going to require a lot of buy-in from all stakeholders in order to get this right and turn it around.”
Moody’s and S&P (SPY) cut their ratings one notch in the past month, highlighting increased policy risks as the ruling African National Congress pushes programs to address poverty and unemployment. About 16 million people, or a third of the population of 50.6 million, receive welfare grants.
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