Rand Snaps 5-Day Rally as Gordhan Says Can ‘Live With’ Level
The rand slipped 0.4 percent to 8.8494 per dollar as of 11:36 a.m. in Johannesburg. Yields on benchmark 10.5 percent bonds due December 2026 dropped two basis points, or 0.02 percentage point, to 7.27 percent.
Gordhan yesterday delayed plans to narrow the budget deficit and cut his forecasts for economic growth for the next three years. The rand has slumped 4.3 percent against the dollar this year, the worst performer among emerging-market peers tracked by Bloomberg.
“The deterioration in the budget balance is significantly worse than we had anticipated,” Carmen Nel, a Cape Town-based analyst at Rand Merchant Bank, said in e-mailed comments. “The finance minister indicated that the government is comfortable with the rand at current levels.”
The deficit target was raised to 5.2 percent of gross domestic product in the year through March from 4.8 percent estimated in October. The government will cut spending to help bring the shortfall down to 4.6 percent next year, compared with an earlier projection of 4.5 percent, and 3.9 percent in 2014/15. As recently as 2012, Gordhan was targeting a 3 percent gap in two years’ time.
Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have downgraded the nation’s debt since September, concerned by a slowing economy and rising spending pressures. Moody’s and S&P have a negative outlook on the rating, indicating they may lower it further.
“In recent times, we have found a balance, where you don’t hear public noise about the currency issues and people begin to understand the negative effects on fuel prices,” Gordhan said in an interview in Cape Town after giving his budget speech yesterday. “We can live with it. The key is still the volatility question.”
The rand’s three-month implied volatility against the dollar climbed two basis points yesterday to 12.29 percent, the second-highest after the Japanese yen out of 16 major currencies monitored by Bloomberg.
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