South Africa's rand gains on report ANC may scrap VAT hike

JOHANNESBURG (Reuters) -The South African rand firmed on Monday, boosted by a news report that the country's biggest political party may back down on a plan to raise value-added tax (VAT) and dollar weakness on global markets.

At 1404 GMT, the rand traded at 18.89 against the dollar, about 1.4% firmer than Friday's closing level.

The Sunday Times newspaper reported that the African National Congress was likely to drop its insistence on a VAT hike in this year's budget after indications that none of the parties it has been talking to would support it.

The ANC has clashed with its main coalition partner, the Democratic Alliance over the budget's proposal to raise VAT by 0.5 percentage points on May 1 and another 0.5 points next year.

The pro-business DA voted against the budget's fiscal framework in parliament and is challenging the VAT hike in court, raising investor concern it could quit or be forced from the coalition government.

Andre Cilliers, currency strategist at TreasuryONE, said scrapping the VAT increase would keep the government intact and that prospect was supporting the rand.

The ANC and DA met on Saturday to discuss the impasse. Neither party gave a detailed readout of their talks, but both described them as constructive.

The rand was volatile last week on U.S. President Donald Trump's changing tariff policies and local political news.

Trump's tariffs have escalated tensions between the U.S. and China, South Africa's biggest trading partner.

Shares on the Johannesburg Stock Exchange's blue-chip Top-40 index also rose, trading about 2% higher.

South Africa's benchmark 2030 government bond gained, as the yield fell 8 basis points to 9.225%.

(Reporting by Tannur Anders and Bhargav Acharya; Editing by Alexander Winning Bernadette Baum and Toby Chopra)