The rand extended losses on Friday morning‚ putting the local currency on course for its biggest weekly drop against the dollar since March.
The stronger dollar and mounting fear that rating agencies could soon downgrade SA’s credit rating piled pressure onto the rand.
A sharply weaker currency stokes inflation‚ and comes at a time when oil prices are also rising. Brent crude is near $59 a barrel‚ its highest level since 2015.
South African fuel prices are based on Brent crude‚ and a rising fuel price is also inflationary.
“Of the 50c (move) in dollar/rand over the past two days‚ 30c can be ascribed to the budget and the other 20c to the surging dollar‚” Rand Merchant Bank currency strategist John Cairns said.
“In aggregate‚ the move is super aggressive and we should eventually expect some recovery. However‚ both pressures are likely to persist for a while.”
Fitch Ratings‚ which already has SA’s debt rating below investment grade‚ said this week that the Treasury was straying from fiscal consolidation faster than it had expected.
The comment followed the medium-term budget policy statement that Finance Minister Malusi Gigaba presented to Parliament on Wednesday.
The budget forecast ballooning budget deficit‚ as well as spending in the current 2017-18 financial year. The debt-to-GDP ratio is also projected to rise significantly by 2022.
“The markets didn’t like the budget deficit news but more alarming was the size of the growing debt and the debt servicing levels – interest costs are going to consume 15c of every rand of tax collected in three years time‚” said Craig Pheiffer‚ chief investment strategist at Absa Stockbrokers & Portfolio Management.
The bleak picture of the country’s finances is compounded by political uncertainty as the ANC heads to its conference in December to choose a successor to President Jacob Zuma.
At 9.28am on Friday‚ the rand was R14.3196 to the dollar from Thursday’s R14.2365‚ at R16.6471 to the euro from R16.5813 and at R18.7576 to the pound from R18.7218.