Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions said financial markets have largely been dominated by global elements in recent weeks, and South Africa has been no exception.
"This week, however, offered a change of scenery, as the National Budget came into focus. While markets were braced for a bloodbath, Finance Minister Tito Mboweni managed to strike a balance, and at least allude to actions that appeased analysts, investors and seemingly ratings agencies," she said.
Eskom, Ratings Agencies and SOEs
"Following the meeting between National Treasury and ratings agencies on Thursday, both S&P and Moody’s expressed concerns regarding the fiscal strain that financially assisting Eskom will cause. However, they also noted that an increased spending limit doesn’t automatically imply that a weakening of credibility will follow."
She said markets seemed to have regained some faith in the strained economy.
"Many now anticipate that South Africa will be able to avoid a further downgrade by the two major ratings agencies.
"The agencies will pay close attention to the restructuring of Eskom, the plans for dealing with other troubled State-Owned Enterprises (SOEs) and will also take into account some of the other positives to emerge such as a reduction in inflation and the steps being taken to decrease the bloated government wage bill," said Botes.
She said local politics have mostly "been on the quiet side" apart from the usual critique in terms of reaction to the budget.
"The dissolution of Parliament created quite a bit of angst during the early stages of the announcement, although it soon became clear that this is merely a technicality. The current Parliament’s term runs until the May 20, but elections are set to be 12 days early this year, taking place on the May 8.
"The dissolution is merely a means to an end to have an early election, and will in no way hamper Parliament’s work. The rand experienced quite a bit of volatility this week, with a particularly large knee-jerk reaction from markets on Wednesday as the Budget Speech kicked off.
"The rand reached lows of R14.37 this week against the greenback, while making headway on Thursday to trade as low as R13.88," she said.
Botes said the local unit's current strength was also attributed to the fact that it was likely to avoid a downgrade but was also due to a softer dollar.
"The dollar came under pressure during trade on Thursday after the US Federal Reserve once again affirmed its more measured and patient approach to interest rate hikes, supported by weaker than expected economic data. The data calendar has been on the light side this week, with the week starting off with a dollar holiday on Monday.
"Aside from the Budget Speech, Consumer Price Index (CPI) figures were the only data to be released from the local economy. CPI saw an unexpected decline, dropping from 4.5% in December to 4% in January, largely due to a drop in fuel prices. The improved inflation rate also signals that the Monetary Policy Committee (MPC) is likely to keep interest rates on hold in March."
She said she expected the rand to remain largely within a range of R13.80 to R14.20 to the greenback, with a bias towards a weaker rand as the year progresses.
By 15:36, the rand was changing hands at R13.99/$.