Rand steady ahead of mid-year budget; markets focus on inflation target
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The South African rand held near its previous close on Wednesday as investors awaited a mid-year budget review expected to show a healthier fiscal trajectory on improved revenue collection, with attention centered on potential signals about the inflation-targeting framework.
At 0540 GMT, the rand traded at 17.1500 per dollar, broadly unchanged from 17.1525 at the prior close in early trade. Finance Minister Enoch Godongwana is scheduled to deliver the mid-year budget review around 1200 GMT. Economists anticipate a stronger fiscal picture than the main budget in May owing to firmer revenue collection, though growth projections could be revised lower.
“Overall … we expect the news to be positive for the fiscal path,” said Razia Khan, head of research for Africa and the Middle East at Standard Chartered, in a note. Markets will scrutinize any guidance on the inflation target, which the finance minister sets, as the central bank has advocated for lowering it; that preference has supported the rand and government bonds this year.
A modest fiscal improvement would ease funding pressures, potentially reduce duration supply, and support local bonds, while clearer deficit and issuance guidance could compress risk premia if credibility is reinforced.
Any signal toward a lower inflation target may further anchor expectations and lower term premia over time, though the transition could imply tighter policy in the near term, shaping rate expectations and the growth outlook.
For the currency, credible consolidation and disinflation commitments would underpin rand stability, whereas surprises on deficit, growth assumptions, or the inflation framework could prompt swift repricing across FX and rates.
With positioning sensitive to fiscal and policy clarity, the mid-year review is a near-term catalyst for South African assets; the balance between consolidation goals and tempered growth forecasts will guide market direction across bonds, rates, and the rand.
