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The rand recoups some of its mini budget losses, but risks remain

by , 23 October 2015

Following the finance minister's medium-term budget address, the rand fell nearly 2%.

Two days later and the currency is looking slightly stronger, but it's underperforming other emerging market currencies and could weaken again.

Yesterday, the South African Reserve Bank said it may step in if the rand starts to put rising pressure on inflation.

Let's take a closer look at what's going on…

The rand fell sharply during the mini budget

This morning, the rand was stable against the dollar, “after heavy losses earlier in the week,” reports Fin24. The currency didn’t respond well to the mini budget and the student protests that disrupted the address.

Concerns remain about the poor state of the economy, which could lead the rand to further weakness, adds Fin24.

Nhlanhla Nene, the finance minister, cut the forecast for economic growth in SA for this year to 1.5%, 0.5% lower than his forecast in February, says the SABC. He put slowing economic growth down to “electricity supply constraints, falling commodity prices and lower confidence levels”.

Helping the local currency recover some of its losses was welcomed news from the European Central Bank’s monetary policy committee meeting, says BDLive. The bank indicated “it could provide additional monetary stimulus to boost the European Union economies”.

The rand is underperforming

Yet the “rand is still underperforming its emerging market peers,” notes MoneyWeb. The student protests outside of parliament during the mini budget address have raised concerns amongst investors.

The rand’s woes led the governor of the Reserve Bank, Lesetja Kganyago, to comment on the situation at a conference yesterday, reports Bloomberg. He said the central bank “will act to counter the effect of a weaker rand on inflation if it starts to see price pressures spreading more broadly in the economy”.

At time of writing, the rand was trading at R13.34 to the dollar, R14.82 to the euro and R20.56 to the pound.

So in spite of the rand clawing back some of its losses following the mini budget, the currency remains very much vulnerable to what lies ahead.

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The rand recoups some of its mini budget losses, but risks remain
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