Budget: rand to hold firm

Johannesburg - Leading economists expect the rand to remain largely undeterred by Finance Minister Pravin Gordhan's maiden Budget speech on February 17.

Francois du Plessis, director and fund manager at investment management firm Vega Capital, said he does not expect any major announcements which would move the currency markets, "however a further (small) relaxation of forex controls may not be impossible."

Investec economists Annabel Bishop and Kgotso Radira also believe there is the possibility of further foreign exchange control relaxation. "This was a significant focus of the medium term Budget policy statement (MTBPS) and therefore is unlikely, but it may be seen as an opportune time to liberalise capital further given currency strength."

Colen Garrow, economist at financial services group Brait, said government has shown its dislike for the stronger rand exchange rate and the impact this is having on the manufacturing sector.

However, verbal intervention aimed at weakening the rand exchange rate, came to naught.

Garrow noted a recent report by Collins Chabane, who in the Presidency heads performance monitoring and evaluation, stating that South Africa needed policies that promote a stable exchange rate.

Rand will a ba non-event

"He went on to say that the country's ministers of finance and trade and industry "will elaborate on what steps we need to take to deal with stabilising the rand" - Bloomberg. The accent of this comment is on 'stable exchange rate', as it conjures up measures of what steps authorities could follow to loosen the grip the strong rand exchange rate is having on the supply sectors of the economy, not only on manufacturing, but also on mining," Garrow said.

"Such measures would weaken the local currency, with the purpose of not only boosting export industry, but also of encouraging import substitution, in the process underpinning job creation. The obvious corollary of such steps would be the impact this has on the inflation targeting mechanism the South African Reserve Bank is mandated to protect," Garrow concluded.

Tony van Dyk, chief dealer at Kagiso Treasury Solutions, concurred. "My view is that it will not be a good news Budget for the man on the street.

"On the rand, my suspicion is that it will be a non-event. He said that there might be further speculation on the relaxation of exchange controls, but we might see very slight movement either way," van Dyk said.

"On the inflation side we are facing a huge Budget deficit. The question is how will they (government) fund it?" - the likelihood being through taxes, which would then impact on the bond market, he said.

On a medium term outlook for the local currency, van Dyk said: "I believe that the rand will remain steady until the World Cup, and in the mid-term will remain below R8.00 against the dollar.

- I-Net Bridge