SARB unlikely to cut rates

Independent Newspapers

Central bank govenor Gill Marcus. Photo: Mxolisi Madela.

Growth in South Africa's retail sales accelerated above expectations in May, data showed on Wednesday, denting any chance the Reserve Bank will trim interest rates from current three-decade lows this week.

But a separate report showed inflation is well-anchored within a 3-6 percent target band, keeping the door open for further monetary policy loosening in the year if the overall economic outlook turns dimmer.

Retail sales were up 6.4 percent year-on-year at constant prices in May, compared with a revised 1.1 percent in April, Statistics South Africa said.

Sales also rose by 4.7 percent in the three months to May compared with the same period a year ago, but were down by 0.8 percent in May compared with the previous month.

Economists polled by Reuters had expected year-on-year sales growth to accelerate to 4.8 percent in May.

“This data still shows that consumption expenditure remains buoyant and as result monetary policy remains sufficiently accommodative for the time being,” said George Glynos, managing director at research house ETM.

The central bank will likely keep its repo rate at a 30-year low of 5.5 percent on Thursday as economic growth remains hesitant while CPI inflation is seen within target over the next couple of years, a Reuters poll showed last week.

Inflation slowed more than expected to 5.5 percent year-on-year in June from 5.7 percent in May, Stats S.A. data showed on Wednesday.

While local demand has recovered after 650 basis points of rate cuts in the two years to 2010, South Africa remains vulnerable to a downturn in the euro zone and some analysts see 2012 domestic growth below the Treasury's 2.7 percent forecast.

“Consumer spending is expected to lose momentum in the months ahead as a poor economic outlook, both locally and globally, hurts consumer confidence and as higher administered prices weigh on disposable income,” said Nedbank.

“If global economic conditions continue to worsen, the chances of lower rates for longer or even a rate cut will increase.”

The rand was little changed at 8.18 against the dollar at 13:50 SA time from 8.1836 before the retail sales data was released at 13:00 SA time.

The yield on the 2015 benchmark bond edged up one basis point to 5.745 percent while that for the longer dated 14-year bond was at 7.475 percent from 7.46 percent. - Reuters