The rand continued to gain ground against the dollar yesterday after the US Federal Reserve (Fed) kept its interest rates on ice unchanged for a third consecutive period with investors optimistic that the US rate hike cycle has ended.

This was after the local currency firmed on Wednesday after Finance Minister Enoch Godongwana tabled his Medium-Term Budget Policy Statement (MTBPS).

Godongwana revealed that the government planned to increase its borrowing requirements during the 2023/24 fiscal year.

The MTBPS tabled a number of important targets, including fiscal consolidation, reduced expenditure and the reorganisation of government functions. No tax increases were mentioned.

Aurelien Mali, the vice-president senior credit officer at Moody’s Investor Service, said: “The key elements of South Africa’s mid-term budget were broadly in line with our expectations. But significantly lower revenue forecasts over the next two years together with growing spending pressures from state-owned companies and social-relief grants increase the risk of a more pronounced deterioration in the government’s balance sheet.

“The ongoing crisis in South Africa’s energy and logistics sectors will also continue to weigh on its economy next year,’’ Mali said.

The rand yesterday strengthened to R18.37 against the dollar at 3.53pm.

MSCI’s index tracking emerging markets stocks yesterday rose 1.7%, its largest daily gain since late July, Reuters reported.

Annabel Bishop, the chief economist at Investec, said yesterday that markets had factored in no full expectations of another US rate hike this year, and the potential for cuts were building from quarter two 2024.

A dovish Fed chairperson Jerome Powell said that despite elevated inflation, longer-term inflation expectations appeared to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.

He said: “Financial conditions have tightened significantly in recent months, driven by higher longer-term bond yields, among other factors. Because persistent changes in financial conditions can have implications for the path of monetary policy, we monitor financial developments closely.”

Bishop said: “This tightening of financial conditions adds to the expectations that the US has seen its last interest rate hike. In South Africa, no further interest rate hikes are likely this year either.”

Next year, South Africa was only expected to see an interest rate cut in quarter three 2024, of 25 basis points (bps), but they continue to believe a 125 bp drop would occur beginning in 2024 and ending in 2025, she said.

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