Rand drops in week as protests add to budget woes

Weekly drop of 2.7%, now at 13.44 to the dollar.

South Africa’s rand headed for its first weekly decline this month as protests added to negative sentiment after Finance Minister Nhlanhla Nene’s budget painted a bleak picture of government finances and the economy.

The currency retreated on Friday for a weekly drop of 2.7%, the most since the five days through September 25, as police fired stun grenades at university students who had marched to President Jacob Zuma’s offices in Pretoria, the capital, only two days after riots outside parliament in Cape Town while Nene was delivering his mid-term fiscal speech. Nene on Wednesday cut this year’s growth forecast to 1.5% from 2%, and predicted debt will reach almost 50% of gross domestic product this year and the budget deficit widen more than earlier forecasts.

“We actually had more of an impact come through from the protests rather than the actual delivery of the budget,” Mohammed Nalla, head of strategic research at Nedbank Group, said by phone from Johannesburg. If the protests escalate and “it proves to be more socially disruptive,” then the rand would probably weaken further, he said.

Police fired stun grenades at stone-throwing students, while one group of demonstrators chanted “no violence, no violence” outside the Union Buildings. Protesters set fire to plastic portable toilets and pushed them toward police officers, who responded with water cannons to douse the flames and disperse the crowd. Some of the students had boarded dozens of buses to travel the 54 kilometers (34 miles) from Johannesburg to the capital.

The rand dropped 0.1% to 13.4493 per dollar as of 2:13pm in Johannesburg on Friday, its lowest on a closing basis since October 21. It was one of only five emerging markets to decline as China cut interest rates to counter its economic slowdown. Yields on government rand-denominated bonds dropped 5 basis points to 8.33%, compared with 8.14% a week ago. That marks the first weekly increase in four weeks.

“The longer-term trend remains toward further weakness” as the Federal Reserve is likely to increase interest rates in December, Nalla said. “Any pull back to 13 or below I would see as a nice opportunity to go long on the dollar.”

©2015 Bloomberg News

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