Johannesburg - South Africa's rand traded firmer against the dollar on Wednesday, outperforming 24 emerging market peers after the latest retail sales numbers beat expectations, backing the case for the Reserve Bank to raise interest rates.

The market is divided on whether concerns about weak growth will outweigh those over rising inflation when the central bank concludes its fourth policy meeting of the year on Thursday.

The rand has treaded a relatively narrow 10.6325-10.7515 range against the dollar since the start of the week, with most investors opting to play it safe until the rate decision.

At 18:14 SA time the rand was trading 0.38 percent firmer against the dollar at 10.6650 compared with Tuesday's closing level in New York.

The local unit nudged about two cents higher after Statistics South Africa said retail sales grew by 2.4 percent year-on-year in May, above market expectations of 0.8 percent.

“Despite the upside surprise in retail sales, broader economic metrics affirm a weak macroeconomic outlook, and this will keep the South African Reserve Bank reluctant to meaningfully hike interest rates,” Tradition Analytics said in a note.

“There is though a possibility for the bank to raise interest rates at its monetary policy committee tomorrow, albeit by a smaller 25 basis point increment.

Eighteen of the 31 economists polled by Reuters expected the Reserve Bank to keep rates accommodative at 5.5 percent in light of the frail economy, which contracted in the first quarter of the year.

But seven expected a 25 basis point hike and six a 50 point increase in the face of rising inflation, now well above the central bank's 3-6 percent target band at 6.6 percent.

Government bonds were firmer on Wednesday, with local buying interest still strong after a weekly auction on Tuesday.

The yield for the 2026 benchmark eased 6.5 basis points to 8.19 percent as a result, while that for the shorter-dated R157 paper slipped 2.5 basis points to 6.63 percent. - Reuters