The South African rand was down -1.74% on Wednesday morning against the US dollar, trading at R18.07 against the greenback as investors feared the country’s Finance Minister Enoch Godongwana’s Mid-Term Budget Policy Statement (MTBPS) that he will be delivering later in the day.
Earlier in the week on Monday, the rand fell to another two-year low as the markets turned sour on the back of a stronger US dollar and lingering concerns over the impact of ongoing power cuts on the domestic economy.
To add to that, yesterday the country’s business cycle index fell for the second month in a row in August as slowing global growth and higher interest rates suppressed the leading indicator.
The South African Reserve Bank (SARB) said yesterday that the composite leading business cycle indicator declined by 2.3% month-on-month in August following a 1% fall in July.
It was the second consecutive month of decreases in the index and the most in 13 months, as nine of the 10 available component time series were down, while only one component increased.
The SARB said the largest negative contributors were a decline in the number of residential building plans approved and a narrowing of the interest rate spread.
MTBPS hopes for SOE debt
Many economists are widely expecting the finance boss to announce measures by the National Treasury to assist the country’s state-owned entities with the debt crisis that they face, such as logistics company Transnet and the ailing power utility Eskom, which has plunged the country into darkness for most parts of this year with rolling blackouts.
Annabel Bishop, Investec chief economist, said the budget will show further fiscal containment while high inflation has a moderating effect on fiscal ratios.
She said the deterioration in the performance of key SOEs had been a severe limitation on the country’s growth potential.
In this regard, she anticipates the MTBPS to outline some of government’s plans for Eskom’s debt, with market anticipation that the state may absorb at least some.
She said: “Uncertainty still remains high for forecasts, and so risks for volatility persist, although markets have largely priced in the risks of high interest rates and recession. More dovish tones from central banks would improve market outlooks with tomorrow’s FOMC minutes key, along with US CPI inflation figures.”
The impact of the good mini-budget this year on markets is likely to be overshadowed by the heavy risk aversion environment in global financial markets, as it occurs in the run-up to the November FOMC meeting, she said.
BUSINESS REPORT