In this week’s TreasuryONE and ETM Analytics market review, currency strategist André Cilliers discusses the latest developments affecting global and South African markets. Ratings agency S&P expressed cautious optimism about South Africa’s economic outlook, highlighting stability brought by the Government of National Unity (GNU). This marks a positive signal to investors following recent political turbulence. Conversely, the US faced a downgrade by Moody’s, reflecting concerns over the country’s fiscal situation.
The downgrade emphasizes growing global scrutiny over America’s rising debt levels, currently around 135% of GDP, and ongoing fiscal management issues. André noted that tariffs, previously touted by former President Trump as a fiscal remedy, have not sufficiently addressed the underlying structural problems.
Attention now shifts to President Cyril Ramaphosa’s upcoming visit to the US, where he will meet President Trump in Washington. Despite speculation over the potential diplomatic dynamic, Cilliers expects a measured discussion behind closed doors. South Africa aims to navigate sensitive bilateral relations, with Ramaphosa’s diplomatic skills likely playing a key role.
Domestically, South Africa’s third attempt at a budget (Budget 3.0) appears set for smooth passage. Key elements of the revised budget include no new tax increases, a rollback of previously proposed VAT hikes, and targeted spending reductions.
However, Cilliers cautioned that close attention should be paid to where expenditure cuts occur, particularly ensuring infrastructure investment remains intact to drive economic growth.
On monetary policy, the Reserve Bank’s anticipated shift to a single-target inflation rate of 3% signals stability and is viewed positively for the currency.
This, along with diminished political risk, is providing the Rand with continued support.