Growth in South Africa's retail sales slowed more than expected in October, suggesting that consumer demand is still hesitant and interest rates will stay low for longer.
Most analysts see the repo rate staying at 5.5% throughout next year but are not ruling out the possibility of another rate cut should there be more weakness in the economy.
The South African Reserve Bank reduced interest rates by 6.5 percentage points between November 2008 and November 2010. The economic outlook has deteriorated from six months ago due to the debt crisis in the eurozone. Analysts have cut their growth forecasts, and the National Treasury has trimmed its 2011 expectations to 3.1% from 3.4% previously.
On Wednesday, Statistics South Africa said annual growth in retail sales slowed to 7.4% year-on-year at constant prices in October from a downwardly revised 7.7% in September. This was lower than the market expectation of 7.7%.
On a month-on-month basis retail sales were up 0.6% and grew by 7.6% in the three months to October, compared with the same period a year ago.
"There is nothing here to suggest that consumers will not be hit by a deterioration in sentiment and activity should the overall economic backdrop change for the worse," said Razia Khan, head of Africa research at Standard Chartered.
"Given global risks, this is still an argument in favour of keeping interest rates on hold for an extended period."
The rand weakened after the data and was last trading at 8.07 against the dollar from 8.0475 before it was released. The yield on the 2015 bond went up to 6.67% from 6.65%.
The reserve bank's next monetary policy committee meeting is on January 17 to 19. -- Reuters