Retail data strengthens rate cut case

2010-08-18 Source:-http://www.fin24.com/Economy/Retail-data-strengthens-rate-cut-case-20100818

Johannesburg - South Africa's retail sales rose for a sixth consecutive month in June helped by World Cup spending, but the increase was slightly weaker than expected, bolstering the case for a rate cut next month.

Retail sales rose 7.4% in June compared to a year ago, and against a downwardly revised 4.5% increase in May.

Analysts say the impact of the June 11 to July 11 World Cup tournament will wear off, focusing attention on a struggling economy some say needs help from further monetary easing by the central bank.

"One has got to be more forward-looking with retail sales because there won't be the benefit of the World Cup any more. If the Reserve Bank is forward-looking it will recognise that and acknowledge that there's room for a rate cut, rather than wait for the figures to weaken," said Brait economist Colen Garrow.

Retail sales numbers point to a gradual improvement in consumption, a key contributor which has lagged the rest of the economy's recovery from recession. However, consumer spending is still under pressure as household debt remains close to record highs and unemployment of 25% is creating job insecurity.

The central bank, whose monetary policy committee next meets on September 8 to 9, cut interest rates by 550 basis points between December 2008 and March 2010 to support the economy. However, the stuttering economic recovery has raised hopes of another rate cut before year-end.

"Given the uncertain jobs market, evidence still of sluggish growth and a weak pick-up in bank credit, we would not overplay the importance of this," said Razia Khan, head of Africa research at Standard Chartered.

"For us, there is still a case for further easing at the September MPC (monetary policy committee) meeting."
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