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The SA Daily 25 February 2020

Rand dips before Budget

Shireen Darmalingam

  • The rand is 8.3% weaker now than in early January. It is above its 50-day, 100-day and 200-day moving averages (R14.54/$, R14.65/$ and R14.66/$). It is also considerably weaker than our year-end forecast of R14.60/$.
  • The rand slid last week after Moody’s rating agency lowered its GDP growth estimate for 2020 to 0.7%, from 1.0%. Moody’s said that this change is “a reflection of domestic challenges” rather than external factors. Such SA-specific risks have been profoundly exacerbated by Eskom’s unreliable electricity supply, with unplanned power cuts resuming in January after an already dismal 2019 of poor power supply. This constrained generating capacity will keep the rand under pressure. In addition, the rand faces slack progress on policy reform as well as the risk of a Moody’s downgrade this year.
  • We believe that the rand is already discounting such a downgrade to non-investment grade after this week’s Budget 2020. Moody’s is scheduled to release its sovereign review of SA on 27 March. Budget 2020 tomorrow is unlikely to see the rand firmer. We expect some spending cuts, moderate tax hikes, fiscal drag, and an inevitably deteriorating longer-term fiscal trajectory.

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