Cape Town – The South African rand strengthened by 1.4% on Monday, trading at R18.89 to the US dollar, as investor sentiment improved on the back of political and global economic developments.
The rally came after Sunday Times reported that the ruling African National Congress (ANC) may abandon a controversial plan to raise VAT — a proposal that had faced stiff resistance from its Government of National Unity (GNU) coalition partners, particularly the Democratic Alliance (DA).
The ANC had initially proposed a 0.5 percentage point VAT increase in May, with another hike planned for next year. The DA, which has strongly opposed the move, voted against the fiscal framework and is pursuing legal action to block the increase. These tensions raised concerns about the stability of the GNU.
However, reports that the ANC may backtrack on the VAT hikes have reportedly calmed markets, with analysts telling Reuters that the move could help preserve the fragile governing alliance.
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Over the weekend, the ANC and DA held what were described as “constructive” talks, though no further details were disclosed.
Market sentiment was further buoyed by a weaker US dollar and easing global trade tensions. The JSE Top-40 index rose by 2%, while yields on South Africa’s 2030 government bond fell by 8 basis points to 9.225%.
In a related report, Daily Investor noted that the rand had rallied back below R19.00/USD, reaching R18.86, helped by a pause in US President Donald Trump’s tariff plans and reduced tension within the GNU.
Investec chief economist Annabel Bishop said the scaling back of US protectionist policies — initially introduced in early April — has helped strengthen the rand. She also highlighted a recent improvement in relations between key GNU political parties, which has reduced South Africa’s political risk premium.
Bishop explained that although last week’s turmoil, including the ANC’s unilateral tabling of a national budget not agreed upon by other GNU members, caused severe market volatility and a sharp drop in the rand, the currency has since stabilised as coalition tensions eased.
She added that the rand could strengthen further to R18.60/USD in the near term, especially as the US dollar continues to slide to multi-year lows.
