Rand Falls Against Dollar; Manuel May Push Budget Into Deficit

By Garth Theunissen

Oct. 21 (Bloomberg) -- South Africa's rand fell against the dollar on speculation Finance Minister Trevor Manuel will detail plans to limit the fallout from the global credit squeeze with increased spending, pushing the budget into deficit.

The rand also weakened versus the euro on expectations Manuel will boost funds for power plants and social welfare grants when he presents his medium-term budget in Cape Town today. The deficit may be as much as 1 percent of gross domestic product in the year through March 2010, Standard Chartered Plc and South Africa's Bureau for Economic Research said last week.

``There is some concern in the market the government may be leaning'' toward higher spending, said George Glynos, managing director in Johannesburg of Econometrix Treasury Management, which advises clients on bond and foreign-exchange transactions. ``There are also sure to be downward revisions to both growth and fiscal-revenue collection.''

The rand fell as much as 1.5 percent to 10.3378 per dollar and traded at 10.3325 by 9:02 a.m. in Johannesburg, from 10.1875 yesterday. It slipped versus 13 of the 16 most-actively traded currencies monitored by Bloomberg, losing 0.7 percent against the euro to 13.6903.

South Africa's ruling African National Congress met with the Communist Party and the South African Congress of Trade Unions on Oct. 17 and 18 to discuss future economic policy. The summit supported the need for the central bank to consider job creation and economic growth when it sets interest rates, ANC Secretary-General Gwede Mantashe said on Oct. 19. Labor unions and communists successfully backed Jacob Zuma to oust Thabo Mbeki as party leader in December last year.

`Bigger Picture'

``There is a bit of concern that our fiscal surplus will at best be a lot smaller than earlier thought,'' said Brigid Taylor, a senior currency dealer at Rand Merchant Bank in Johannesburg. ``The bigger picture is still dominated by concerns about the global financial system. Risky assets like the rand are persona non grata.''

South Africa's currency slid 33 percent against the dollar this year, making it the worst-performing major currency in the world, as investors sold a net 34 billion rand of the country's stocks and bonds. About $30 trillion was wiped off global stock benchmarks in the past year as the freeze in credit toppled financial institutions, threatening a global economic slump.

South African government bonds fell, with the yield on the benchmark 13.5 percent security due September 2015 adding 5 basis points to 9.39 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest- rate expectations, climbed 10 basis points to 9.68 percent. Yields move inversely to bond prices.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net