Rand Cuts Losses as Gordhan Says Fiscal Deficit to Be Narrower

The rand pared its earlier losses after South Africa’s Finance Minister Pravin Gordhan said this year’s fiscal deficit will be narrower-than-estimated as the government plans to reduce spending.

The currency cut its declines of as much as 0.8 percent, the most in three weeks, as the National Treasury said the shortfall is forecast to reach 4.2 percent of gross domestic product in the year through March 2014. The target was restated to include extraordinary receipts such as profit on bond sales and foreign-currency transactions, it said. In February, Gordhan predicted a gap, excluding extraordinary receipts, of 4.6 percent of GDP, compared with 5.1 percent a year earlier.

“The budget data appears to be a little less bad than the market anticipated,” Vivienne Taberer, who helps oversee the equivalent of $14 billion in fixed-income assets at Investec Asset Management, said by phone from Cape Town.

The rand strengthened following Gordhan’s speech, trimming its retreat against the dollar to 0.5 percent and trading at 9.7824 by 4:18 p.m. in Johannesburg. Yields on government bonds due December 2026 rose one basis point, or 0.01 percentage point, to 7.71 percent after falling 10 basis points yesterday.

Gordhan told reporters spending limits will be imposed on how much government officials can spend on vehicles and said a ban on first-class flights will be imposed. Credit cards will no longer be issued to officials and existing ones will be canceled, he said.

Commodities Retreat

The currency also slid as commodities dropped, with the S&P GSCI Index slumping 1 percent to 626.96, declining for a third day. South Africa has the world’s largest-known reserves of platinum, which is used in carmaking, and chrome. It is the sixth-largest producer of gold.

Spot gold fell 0.4 percent to $1,334.75 an ounce, paring its weekly gain. Platinum slipped 0.8 percent to $1,437.85 per ounce.

South Africa plans to raise $1.5 billion from foreign debt sales in each of the next two fiscal years, including a planned Islamic bond issue, the Treasury said.

“Although the total borrowing requirement comes down for 2013/14, this is due to an increase in extraordinary receipts, and local long-term issuance will actually increase a little, by just under 6 billion” rand, Taberer said.

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