Nicola Mawson
As South Africa prepares for its much-anticipated Medium-Term Budget Policy Statement (MTBPS) tomorrow, investors are treading carefully, looking for signals from the new administration that could guide both the local currency and the economy.
This iteration of the MTBPS marks the first under the new government, and comes just over 100 days since its formation, adding a layer of uncertainty to financial markets.
The local currency wavered between R17.60 and R17.70 to the greenback yesterday, with a few moves either side before settling at R17.69/$1 by 5pm, while the JSE’s All Share index showed steady but slow gains throughout the day to end 0.7% higher at 87 644 index points.
Despite the dollar’s strength, the rand has held steady, trading around R17.72 with resistance at R17.80 and support at R17.35, said Andre Cilliers, currency strategist at TreasuryONE.
“This stability may reflect investor caution ahead of the MTBPS, where fiscal reforms and inflation management signals could reinforce the rand’s position,” said Cilliers.
South Africa’s currency has come off its recent highs of as low as R17.09 against the dollar and has, so far, failed to break the R17.00 level.
Cilliers said that South African Reserve Bank (SARB) Governor Lesetja Kganyago has highlighted that fiscal reforms could attract foreign capital, strengthen the currency, reduce inflation, and give the bank more leeway for rate cuts.
“There is speculation that the National Treasury, in collaboration with the SARB, is considering a lower inflation target. While any formal change may be postponed until the main budget in February, even a mention of this would align South Africa with global inflation targets,” he noted.
Kganyago has recently hinted at lower inflation targets, specifically stating that such a move can be done without any cost to the economy or serious job losses. The bank has been hinting that the target could be dropped to fall into a bracket of between 3% to 5% and eventually 2% to 4%.
Cilliers said that any mention that there may be a lower inflation target would enhance long-term stability for the rand and improve bond market sentiment. While the MTBPS is not a policy setting event, any indication of credible fiscal reforms would support market confidence and the rand, he added.
“The MTBPS will give critical insights into Finance Minister [Enoch] Godongwana’s approach to government spending, fiscal discipline, and private sector collaboration,” said Cilliers.
“Investors will look closely at growth forecasts and the government’s plans to foster economic resilience without cutting essential spending.”
Yet, Cilliers emphasised that the rand’s resilience depends partly on stable global risk sentiment.
“Countries with credible fiscal outlooks tend to suffer less negative speculation during geopolitical or macroeconomic stress, which could become critical if market volatility increases ahead of the US elections.”
Bianca Botes, director at Citadel Global, said yesterday morning that the rand remained on edge as risk events unfold, such as uncertainty over the Middle East.
Meanwhile, Anchor Capital stated that oil prices nudged higher and were on track for a weekly gain of more than 1%, as tensions in the world’s top oil-producing region, the Middle East, and a restart in Gaza ceasefire talks in the coming days kept traders on edge.
Anchor Capital CEO Peter Armitage said yesterday during a seminar that South African equities have performed well over the past six months and that political risk premium has the potential to come down further.
Casey Sprake, investment analyst for fixed income at Anchor Capital added, while the economic outlook is improving, driven by reduced political uncertainty and strong fundamentals, structural challenges, particularly in logistics, continue to pose risks to growth.
“Looking forward, achieving more robust economic growth will rely on the effective implementation of structural reforms,” she said.
BUSINESS REPORT