The rand weakened against the dollar on Tuesday following an announcement by Treasury that exchange controls would be relaxed to lower the cost of doing business and to promote investment.

At 2.28pm the rand was bid at 7.6374 to the dollar from 7.5820 at its previous close. It was bid at 11.3508 to the euro from its previous close of 11.2790 and was at 12.5035 against sterling from 12.3627.

The euro was bid at US$1.4859 from US$1.4869 overnight.

A local trader said: "We have softened as it is clear that government wants to weaken the rand by doing away with exchange controls. It is clear that government wants a weaker currency, but on a positive side, the proposals will also mean that we open up the economy. Once we break 7.65 against the dollar, we could break 7.75.

"I would suggest that the speech is more positive than negative, but let's keep a lookout for a reaction from the US this evening," he said.

South Africa's finance minister, Pravin Gordhan, said on Tuesday that he is concerned about the strong and uncompetitive levels of the rand at the moment and wished authorities had the capacity to intervene in a more assertive way than is available at present.

He said, though, that Treasury would assist to increase foreign exchange and gold reserves beyond the $40-billion mark.

One of the big surprises in Tuesday's Medium Term Budget is an announcement by Treasury that exchange controls will be relaxed to lower the cost of doing business and to promote investment. Included among these reforms is the removal of the 180-day rule requiring companies to convert their foreign exchange into rand. This rule has added to the volatility of the rand in the past.

At the same time, the Treasury called current strong levels of the rand into question and said it will work together with the central bank to support low inflation and a more stable and competitive real exchange rate.

Bonds gain on news dfct not so bad

Bonds firmed by between three and five basis points on Tuesday afternoon on the news that South Africa's fiscal deficit has not widened by as much as some in the market has expected.

By 2.45pm the short-term government R154 bond was bid at 7.400 percent from a previous close of 7.410 percent. The medium-term R157 was at 8.700 percent, back to its overnight level, while the long-term R186 was bid at 9.270 percent from 9.305 percent.

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