By Tannur Anders and Sfundo Parakozov
JOHANNESBURG (Reuters) -The South African rand gained slightly on Thursday after the finance ministry said it was withdrawing a contentious increase in value-added tax (VAT) that was due to take effect on May 1.
At 0915 GMT, the rand traded at 18.6650 against the dollar, up about 0.1% on Wednesday’s closing level.
The VAT hike has caused political wrangling for weeks, exposing deep rifts between the African National Congress (ANC) and the Democratic Alliance (DA) in the ruling coalition government.
The DA, which is the second-biggest party in the Government of National Unity (GNU), went to court to challenge the tax increase and voted against the fiscal framework in parliament because of it.
Financial market fears that the DA could leave the coalition were one factor behind the rand’s slump to a record low this month, the other being risk aversion over U.S. President Donald Trump’s tariffs.
“While the move suggests the GNU is likely to remain intact, providing a measure of stability, uncertainty persists,” said Zain Vawda, market analyst at MarketPulse by OANDA.
“The currency remains under pressure until the government outlines plans for alternative funding or potential budget cuts, leaving room for potential setbacks in its recent gains.”
Statistics agency data on Thursday showed South Africa’s producer inflation was at 0.5% year-on-year in March from 1.0% in February.
Data on Wednesday showed consumer inflation slowed more than expected last month.
On the Johannesburg Stock Exchange, the blue-chip Top-40 index last traded about 0.1% higher.
The benchmark 2030 government bond was also stronger, as the yield fell 8.5 basis points to 8.955%.
(Additional reporting by Alexander Winning and Bhargav Acharya; Editing by Kim Coghill, Kate Mayberry and Sharon Singleton)
