South Africa's retail sales jump in May ahead of expected rate cuts

JOHANNESBURG: South Africa's retail sales rose more than expected in May as sales of household goods, furniture and appliances expanded quickly, a hint that pressure on consumers was easing ahead of an expected lending rate cut that may further support spending.

On Wednesday, Statistics South Africa said retail sales rose 2.2% year-on-year, better than a Reuters forecast for a 1.6% expansion. On a quarterly basis, sales rose 1.7%.

Sales by general dealers were up 4% followed by a 3.2% expansion in the furniture and appliances category, and a 2.9% increase in pharmaceutical goods, a sign consumers were more willing than before to spend on semi-durable goods.

Consumers' finances have been under stain due to a prolonged period of weak economic activity, climbing unemployment, higher taxes and fuel price increases, stoking calls for the Reserve Bank (SARB) to reduce lending rates to stimulate spending.

The bank is set to cut interest rates by 25 basis points at Thursday's meeting, a Reuters poll showed last week, while forward rate markets on Wednesday showed investors pricing in a close to 40% probability of a cut by that margin.

The bank's policymakers as well as some analysts, however, doubt whether rate cuts will have an impact on long-term growth even if they do boost consumer spending.

"A rate cut will assist at the margins but it will not drive an economic recovery. The nature of South Africa's economic problems are fiscal in nature, not monetary," said George Glynos, managing director at ETM Analytics.

The rand inched firmer following the data, trading at 13.9450 per dollar at 1130 GMT from an open of 13.9600.