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South Africa’s rand on the backfoot after lukewarm budget

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Illustration photo shows a two-rand coin above a South African flag

Johannesburg, Feb. 21, 2019 (Reuters/NNN) South Africa’s rand traded slightly weaker on Thursday, a day after the finance minister announced a partial bailout for ailing power utility Eskom in an annual budget reflecting sluggish growth while deficits and debt widened.

At 0630 GMT, the rand was 0.3 per cent weaker at 14.0362 per dollar after closing at 14.03 overnight in a busy session that included the release of local inflation and the much-watched minutes of the Federal Reserve.

The rand initially swung weaker as Finance Minister, Tito Mboweni, revealed 69 billion rand (4.92 billion dollars) support for Eskom, but regained some ground as traders saw a smaller chance of a rating cut to “junk” by Moody’s.

The minister’s firm approach to Eskom’s debt and his mention of finding a strategic private partner for the transmission component once the utility has been broken into three elements can be viewed as positive from an economic point of view,” said Maarten Ackerman, chief economist at Citadel.

Moody’s warned late on Wednesday that the budget highlighted the country’s weakening fiscal position, but hinted at a reprieve when the firm makes a credit decision due at the end of next month.

Before the budget headline consumer inflation showed further slowing to 4 per cent year-on-year in January from previous 4.5 per cent, boosting the attractiveness of South African assets among yield-seeking investors.

Bonds traded weaker, with the yield on the benchmark government paper due in 2026 up 0.5 basis points to 8.875 per cent.

($1 = 14.0225 rand)(Reuters/NNN)

AOM/JTJ

Edited by Abdullahi Mohammed/Edited by Julius Toba-Jegede

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