Key points
- What started as a consolidative week for the ZAR ahead of this week’s budget has turned positive, culminating in the USD-ZAR testing the 18.0000/dr handle. Comments made by Deputy Finance Minister Masondo on SA’s inflation targeting regime and the likelihood that the budget would pass have bolstered sentiment and given investors a good reason to reduce the risk premium priced into the ZAR.
- This week’s budget will be pivotal. Should it be a more reformist budget that seeks to cut out waste, constrain expenditure and achieve fiscal consolidation without unnecessarily raising the tax burden on households, then it will be well received and the GNU will gain credibility. The opposite also holds true, but the signs appear positive for now, and SA markets have responded accordingly.
Baseline view
Sentiment has turned positive as investors position for conservative fiscal and monetary policies. Such prudent policy positions will be rewarded, and the ZAR’s performance this week shows that it could appreciate further if these reforms are credible.
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