Bloomberg News

Rand Falls 1st Day in Three as South Africa Cuts Growth Outlook

October 25, 2011

Oct. 25 (Bloomberg) -- The rand declined for the first time in three days after the government lowered its growth forecast and kept borrowing plans unchanged. Bonds advanced.

The currency of Africa’s biggest economy depreciated 0.4 percent to 7.9051 per dollar by 6:04 p.m. in Johannesburg, erasing an earlier gain of as much as 0.3 percent. The government’s 10.5 percent bonds due 2026 rose, reducing the yield by 15 basis points, or 0.15 percentage point, to 8.334 percent.

The government cut its forecast for growth in 2012 to 3.4 percent from 4.1 percent in February, the National Treasury said in its mid-term budget, released in Cape Town today. The fiscal gap will widen to 5.5 percent of gross domestic product in the year through March 2012, from a revised 4.6 percent last year. Borrowing plans will remain unchanged this year as the government draws down cash balances.

“The magnitude of the increase in the financing requirement was as expected, but most people were looking for a much larger increase in net domestic long-term loans,” leaving it almost unchanged on a gross basis, Leon Myburgh, a Johannesburg-based analyst at Citigroup Inc., said by phone. “There was also a meaningful revision in the public sector borrowing requirement. That was a positive surprise for the bond market.”

The government’s borrowing requirement will be 166.6 billion rand in this fiscal year, higher than the February estimate of 157.9 billion rand. Infrastructure spending was revised down to 20 billion rand this year, Myburgh said.

Growth, Infrastructure

The economy expanded an annualized 1.3 percent in the second quarter, the slowest pace in about two years. Demand for goods from Europe waned because of the debt crisis and as the global economic recovery stalls, Finance Minister Pravin Gordhan told lawmakers in Cape Town today.

“The growth forecasts were not unexpected, but the downward revision in infrastructure spending is bad news for economic development and that is probably why the stock market is falling,” Myburgh said.

The FTSE/JSE Africa All Share Index were little changed, increasing less than 0.1 percent to 31,663.61 by the end of trading.

--Editors: Linda Shen, Gavin Serkin

To contact the reporters on this story: Sikonathi Mantshantsha in Johannesburg at smantshantsh@bloomberg.net; Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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