JOHANNESBURG—South Africa’s currency jumped on Monday after the national prosecutor dropped fraud charges against Finance Minister Pravin Gordhan, the latest chapter in a battle for control of the ruling African National Congress that has rattled markets in the continent’s most-developed economy.
National Prosecuting Authority chief Shaun Abrahams said in Pretoria that charges against Mr. Gordhan would be dropped because there was no intention to act unlawfully.
Mr. Gordhan, a respected treasury chief and veteran of the antiapartheid struggle, was due to be prosecuted on Wednesday for approving a generous early retirement deal for a former senior official in the South African Revenue Service.
“I am satisfied that Mr. Gordhan didn’t have the requisite intention to act unlawfully,” Mr. Abrahams said at the end of a long press conference laced with obscure case law. “As such, I have directed the summons to be withdrawn with immediate effect,”
The rand jumped about 1.4% to 13.625 to the dollar, its highest level in almost a month. Yields on South Africa’s 10-year bond fell to 8.71%, down from Friday’s close of 8.875%. Yields had hit 8.925% on Thursday, the highest since Oct. 12 and close to September highs, according to Thomson Reuters data.
The dropping of the charges represents the newest development in a turf war between Mr. Gordhan and President Jacob Zuma over government spending and the direction of the party, which has governed South Africa since the end of white-minority rule in 1994.
Allies of Mr. Zuma, whose second term in office ends in 2019, have openly fought with Mr. Gordhan over control of state finances, including the running of state-owned enterprises, anticorruption agencies and the central bank. Ratings firms have warned that political infighting could lead to South African bonds being downgraded to junk status.
The charges became a battle line in the conflict roiling the ANC, pitting presidential loyalists who advocate a more populist approach to governance against Mr. Gordhan, who vowed to tackle widening corruption and keep South Africa from losing its investment-grade rating.
Mr. Abrahams’ announcement of the charges in October drew accusations from several ANC grandees as well as opposition parties, business groups and civil society that he had been politically compromised—a charge the chief prosecutor denied on Monday.
The ANC said after Monday’s decision that the prosecutor’s plan to charge Mr. Gordhan “had a negative impact on the economy and created unnecessary speculations about the real motive.”
Some policy analysts said Mr. Gordhan’s reprieve was unlikely to herald the end of a battle now focused on who the ANC taps to succeed President Zuma ahead of national elections in 2019, despite the pretense of unanimity on Monday.
“Investors would have been cheered by today’s news, but this is a long war,” said Charles Laurie, director of Verisk Maplecroft, a U.K.-based political risk consultancy.
Prominent ANC members have called on Mr. Zuma to step down and said the corruption allegations are humiliating the party, while some of Mr. Zuma’s allies have said Mr. Gordhan is in hock to the so-called white capital that still controls swaths of South Africa’s economy. Thousands of demonstrators are expected to gather in Pretoria on Wednesday under the banner of “Save South Africa”—a protest initially scheduled to coincide with Mr. Gordhan’s hearing.
The news marks a reversal of fortune for Mr. Abrahams, who said on Oct. 11 that Mr. Gordhan had been summoned to appear in court on Wednesday along with the former commissioner and deputy commissioner of the SARS, the country’s tax agency. “The days for disrespecting the NPA are over,” Mr. Abrahams said at the time.
Asked repeatedly whether he would resign on Wednesday, Mr. Abrahams said he wouldn’t. “Am I embarrassed or disappointed? I don’t really want to answer that question,” he said.