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S.Africa’s retail sales slide, stir rate cut hopes

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South Africa’s retail sales contracted by a worse than expected 7.0 percent annually in August, stirring hopes for another cut in interest rates despite central bank Governor Tito Mboweni’s hints against it.

Statistics South Africa said on Wednesday retail sales fell after a 4.1 percent decline in July at constant prices. The August contraction was deeper than the consensus of 3.2 percent seen by analysts in a Reuters poll.

Consumers’ spending helped lift the economy to average growth of 5 percent between 2003 and 2007, and depressed demand in the sector could give the central bank reason to add to the 500 basis points it has knocked off rates since December.

“For interest rates, it would still help the case that we can see a further rate cut in the cycle. said Dave Mohr, economist at Citadel. “The consensus says we’ve probably passed the cycle of rate cuts but numbers like these support the case that we could see another rate cut.”

Central bank Governor Tito Mboweni said late on Tuesday monetary authorities had offered “sufficient” policy accomodation to help pull the economy out of a “mild” recession.

Household spending has cooled sharply over the past year, with consumers grappling with high debt levels and job insecurity. Stats S.A. said in the three months to August sales fell by 6.0 percent in compared to the same period a year ago, also at constant prices.

“What it is telling us is that the consumer is still taking strain …. retailers are battling. I don’t see any significant improvement until next year,” said Colen Garrow, economist at Brait.

Mboweni is due to speak at a Reuters Econometer function around 1100 GMT and could shed more light on the direction of interest rates next Thursday.

The rand was slightly weaker at 7.2775 against the dollar at 0959 GMT, from 7.2650 before the data was released at 0930 GMT. The yield on the 2015 bond was at 8.5 percent from 8.505 percent before.

Credit: Reuters

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