Rand holds well below R11/$ ahead of perhaps Gordhan’s final Budget

There is significant speculation today will be South Africa’s widely admired Finance Minister Pravin Gordhan’s final Budget Speech. Former Central Bank Governor Tito Mboweni has been widely tipped to succeed the 64 year old who followed the equally highly rated Trevor Manuel.  The perfect time to switch would be after May’s Election when the ANC is expected to romp home, albeit with a slightly lower majority. After weakening to over R11.20 against the US Dollar, as the Reuters story below (and our graph above) points out, the Rand has improved in the last few days. Suggesting that the appointment of fiscally conservative Mboweni, should it come, will be welcomed by global investors. Like most others in the financial community, we at Biznews.com will be paying close attention to the Budget Speech which starts at 2pm this afternoon. – AH  

JOHANNESBURG (Reuters) – The rand was marginally firmer against the dollar on Wednesday, building on four days of gains caused by stronger-than-expected growth at the end of last year and expectations of a solid 2014 budget from finance ministerPravin Gordhan.

The rand was at 10.72 against the dollar at 0607 GMT, a touch firmer than Tuesday’s New York close but a shade weaker than the previous session’s high of 10.70, the currency’s strongest level in five weeks.

Gordhan is likely to stick closely to his previous spending plans and deficit targets when he presents his budget at 1200 GMT, according to a Reuters poll of economists.

Economists expect a budget deficit of 4.2 percent of GDP for the 2014/15 financial year, slightly wider than the 4.1 percent target outlined in October.

Any marked changes to these projections could affect domestic bonds and the rand, although analysts said Gordhan was unlikely to pull any surprises, particularly nasty ones, less than three months before a general election.

However, besides Gordhan’s plans for this financial year, bond investors will be looking for evidence that the government remains committed to bringing South Africa’s budget deficit towards more sustainable levels over the medium term.

“The finance minister will have to find some way to creditably signal to the rating agencies that even if significant fiscal consolidation will not be pencilled into the current budget, it will be achieved within the next few years,” Barclays Capital economist Peter Worthington said.

Government bonds were firmer, with the yield on the benchmark 2026 issue down 3.5 basis points at 8.510 percent and that on the 2015 bond 4 basis points lower at 7.070 percent.