(4 minutes read)
· The South African rand continued to strengthen to reachR16.74 against US dollar on Friday (June 5), after gaining from theearlier close of R17 against the US dollar a day before
· In the meantime, South Africa’s central bank ruled outhelping the government fund its vaulting budget deficit by covering itthrough loans.
· However, the ruling party ANC is looking at using theinstitution to fund infrastructure and development mainly throughdeficit financing.
The South African rand continued to strengthen to reach R16.74 against US dollar on Friday (June 5), after gaining from the earlier close of R17 against the US dollar a day before. This is the highest level rand has reached since the start of the lockdown in late March. At the start of April, by contrast, the rand was trading near historical lows of over R19 to the dollar. The local currency rallied on the back of a report that the European Central Bank has increased its stimulus programme to South Africa by €600 million – above market expectations.
In the meantime, South Africa’s central bank ruled out helping the government fund its vaulting budget deficit by covering it through
loans. However, the ruling party ANC is looking at using the institution to fund infrastructure and development mainly through deficit financing. Finance Minister Tito Mboweni, who has forecast the budget deficit could swell to more than 10% of gross domestic product, said that the central bank is free to follow a strategy, which it feels deem fit in the present situation.
Significantly, Enoch Godongwana, the African National Congress’s head of economic transformation is of the view that the central bank
should help finance development through the creation of a R500 billion fund. Deputy Finance Minister David Masondohas said he would support direct central bank purchases of government debt. The central bank in March started buying government bonds in the secondary market as the pandemic and plunging oil prices sent stocks, bonds and other asset prices into a tailspin. The Reserve Bank is insisting that the aim of that intervention was to reduce distortion in the market caused by Covid-19, rather than an attempt at quantitative easing.
