SA retail sales back rate hike

JOHANNESBURG – South African retail sales grew by a robust 9,7 per cent in the year to April, data showed on Wednesday, suggesting higher interest rates may be on the cards.

The figures showed annual growth in retail sales slowed slightly from a downwardly revised increase of 10,7 per cent in March, but analysts said demand was still strong enough to back the case for further rate hikes this year. South Africa’s central bank raised its key repo rate by half a percentage point to 7,50 per cent in early June – its first hike in nearly three years – to curb inflation pressures and help rein in surging domestic demand.”Retail sales remain strong and this latest number has shown the trend continuing,” Nedbank economist Magan Mistry said.”This, coupled with high credit demand, a sharp rise in household debt, the current account deficit, high energy prices and the weaker rand all contribute to the risk of a further interest rate hike,” he said.Analysts said the South African Reserve Bank was likely to raise interest rates again at its next policy meeting in August.Consumer demand has been the main driver of strong growth in Africa’s biggest economy over the past two years, spurred by the lowest rates in more than two decades, low inflation and an emerging black middle class.But it has also ignited demand for credit, with household debt jumping to a record 68 per cent of disposable income in the first quarter of 2006, from a previous peak of 65,5 per cent in the fourth quarter of 2005.Inflation pressures have been stoked by soaring petrol prices and sharp falls in the rand, although the currency has clawed back some lost ground over the past month.- Nampa-ReutersSouth Africa’s central bank raised its key repo rate by half a percentage point to 7,50 per cent in early June – its first hike in nearly three years – to curb inflation pressures and help rein in surging domestic demand.”Retail sales remain strong and this latest number has shown the trend continuing,” Nedbank economist Magan Mistry said.”This, coupled with high credit demand, a sharp rise in household debt, the current account deficit, high energy prices and the weaker rand all contribute to the risk of a further interest rate hike,” he said.Analysts said the South African Reserve Bank was likely to raise interest rates again at its next policy meeting in August.Consumer demand has been the main driver of strong growth in Africa’s biggest economy over the past two years, spurred by the lowest rates in more than two decades, low inflation and an emerging black middle class.But it has also ignited demand for credit, with household debt jumping to a record 68 per cent of disposable income in the first quarter of 2006, from a previous peak of 65,5 per cent in the fourth quarter of 2005.Inflation pressures have been stoked by soaring petrol prices and sharp falls in the rand, although the currency has clawed back some lost ground over the past month.- Nampa-Reuters