Rand and international dollar bonds soared on Wednesday after the finance minister announced the government would tap 150 billion rand ($7.99 billion) from a central bank-managed emergency account to limit borrowing.
As of 1249 GMT, the rand was trading at 18.82 rand against the dollar, an increase of about 0.49% from the previous close. It was trading near its previous close just before Finance Minister Enoch Godongwana's 2024 budget speech.
South Africa's long-term government bonds rose the most following the 2024 budget speech, with bonds due 2052 trading at 87.8 cents, up 1.58 cents on the dollar as of 1:49 p.m. Japan time, according to Tradeweb data. Ta.
advertisement
Continue reading below
Africa's most industrialized economy has grown little in the past decade, while revenue collection has also been weak, leading to rising debt levels.
In its 2024 Budget, the Ministry of Finance stated that the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), which had a balance of R507.3 billion as of January 2024, could be accessed because the amount was It said this was because it was “currently greater than the plausible losses from foreign exchange.” Exchange reserves due to rand appreciation.”
The report said the settlement would go toward reducing borrowing and increasing debt servicing costs, meaning total debt is expected to remain stable at 75.3% of GDP in 2025/26, compared to GDP in November. 77.7%.
“The government took the easy way out and leveraged R150 billion of the GFECRA appreciation,” Gia van der Linde, senior economist at Oxford Economics, said in a note to clients.
“GFECRA profits distributed over the next three years will help offset the government's net borrowing requirements and reduce debt servicing costs. I haven't.”
Due to South Africa's difficult economic backdrop, with GDP growth averaging 0.8% since 2012, the national elections scheduled for May 29 are in jeopardy, with the ruling African National Congress (ANC) entering parliament for the first time since the end of apartheid. could lose a majority of 30. years ago.
Meanwhile, Stats SA data showed early Wednesday that annual inflation accelerated to 5.3% in January from 5.1% in December. Economists polled by Reuters had expected 5.4%.
The South African Reserve Bank wants inflation to be around the midpoint of its target range of 3% to 6% and has said it wants to see a clearer trend towards deflating inflation before cutting interest rates.
“We expect rates to remain unchanged for the first half of the year, with an initial 25 basis point (bp) cut in July, followed by similar cuts in September and November,” Nedbank economists said in a research note. Probably.''
