Barely a day after the finance minister presented his 2016 budget, the South African rand faces another sharp fall from R15.23 to R15.58 against the US dollar.
Having started the day with a rather firm R15.21/$, the rand gradually slopped down to as low as R15.66 at the later hours of the day. It also traded lower against other major currencies – at R17.11/€ and R21.69/£.
It has been suspected that the resultant decline of the rand to about 3% was due to the Moody’s downgrading of Brazil, which is expected to have recorded an average negative growth for the next three years.
On the other hand, some analysts in the country are of the view that the sudden decline of the rand signaled a negative interpretation of Gordhan’s budget.South Africa is also faced with a downgrade to junk status, which often times happens when a ratings agency downgrades a country’s bonds to non-investment grade.
A lot of South African investors and companies are skeptical on Pravin’s plans to avert a credit downgrade to junk.
Mokgatla Madisha, head of fixed income at Argon Asset Management said: “There was not enough in what I’ve heard today to suggest that enough reforms are going to be announced between now and then to change that growth trajectory meaningfully, and that is a problem.”
Overberg Asset Management director Brett Birkenstock added that the markets are “questioning whether Gordhan has done or been allowed to do enough to avoid a downgrade”.
Pravin Gordhan has however, stressed the need for the government to close the gap between spending and revenue and to implement a plan that will enhance the ties between the government and the business sector.
Some commentators highlighted that the weaker rand was not only caused by Gordhan’s budget speech, but also by Moody’s decision to cut Brazil’s sovereign rating to junk.