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GBP/ZAR Exchange Rate Forecast: South Africa’s Emergency Budget to Drive the Rand Lower?

South African Rand Currency Forecast

GBP/ZAR Exchange Rate Strengthens Ahead of Supplementary Budget 

The Pound to South African Rand (GBP/ZAR) exchange rate is ticking higher this morning as markets brace for the release of South Africa’s emergency budget.

At the time of writing the GBP/ZAR exchange rate is trading at around ZAR21.6288, up roughly 0.4% from this morning’s opening rate. 

South African Rand (ZAR) Poised to Plunge on Gloomy Budget 

The South African Rand (ZAR) faces a challenging day of trade today as South Africa’s Finance Minister Tito Mboweni prepares to deliver an emergency budget.  

The supplementary budget comes as the treasury faces significant challenges due to the coronavirus crisis. 

Economists expect today’s budget to highlight the considerable strain the outbreak has put on Africa’s most advanced economy, with President Cyril Ramaphosa’s 500 billion Rand stimulus package expected to have added to the country’s already substantial debt pile, concerns over which are likely to send the Rand lower. 

Analysts and Deutsche Bank, suggest: 

‘The emergency budget is likely to prove another disappointment to markets on Wednesday. Tax revenues have collapsed, foreign tourism is non-existent and debt ratios should reach record highs over the upcoming years. 

‘While the market has certainly gotten used to disappointing budget updates, we think, the extent of deterioration in fiscal ratios will have an adverse impact on South Africa markets.’ 

The budget also comes hot on the heels of South Africa’s latest consumer price index, which also looks to be putting pressure on the Rand today after inflation slumped to a 15-year low in April.

Pound (GBP) Gains to be Capped by Second Wave Fears? 

Meanwhile the Pound (GBP) may find only limited gains going forward this week amidst concerns the recent easing of lockdown restrictions in the UK is putting the country at greater risk of a second wave of coronavirus infections. 

Boris Johnson announcement on Tuesday that pubs, restaurants, cinemas and hairdressers will be able to reopen from 4 July, with the 2m distancing rule being eased to ‘one-metre plus’. 

While GBP investors welcomed the news, they also remain wary particularly in light of warnings from UK health experts about the potential for a second wave. 

In an open letter published in the British Medical Journal, health leaders warned: 

‘While the future shape of the pandemic in the UK is hard to predict, the available evidence indicates that local flare-ups are increasingly likely and a second wave a real risk.’ 

So long as the risk of a coronavirus resurgence continues to hang over the UK its likely investors will remain reluctant to place any bullish bets on the Pound in the near future.