Cuts in interest rates fail to help retailers

Consensus forecasts had pointed to a 3.2% fall after a revised 4.1% dive in July.

After news that factory output also shrank more sharply than expected in August, yesterday's official data fanned speculation there could be scope for another rate cut in the next few months.

“It's very disappointing news,” said Standard Chartered's regional research head for Africa, Razia Khan.

“Consumers are not about to ramp up their spending in a huge way. Although rates are probably on hold for now, the risks are still very heavily weighted towards a further easing if the hoped-for recovery does not materialise.”

Consumer spending is the economy's main engine, and has contracted for four quarters in a row as the economy slid into recession. Analysts say consumers are under pressure from falling disposable income, high debt service costs and job cuts.

The Reserve Bank is expected to keep its key repo rate steady at 7% at its policy meeting next week after lowering it by five percentage points since December. Governor Tito Mboweni said this week there was sufficient “monetary accommodation” and fiscal stimulus to propel the economy into recovery late this year or early next year.

Analysts say any scope for further rate cuts has been squeezed by news that Eskom plans to raise tariffs 45% over each of the next three years. That could keep inflation above its 3%-6% target range next year.

But gains in the rand, which scaled a new 14-month peak at R7.23/ yesterday, will help keep imported price pressures at bay.

“Things are a bit rocky still,” said Bureau for Economic Research economist Hugo Pienaar. “If the rand goes to R7/ and economic data continue to disappoint there could be another rate cut.”

In the first eight months this year, retail sales fell 4.8%, Statistics SA said. The sector — about 14% of the economy — has been shrinking since the second quarter of last year.

“We expect retail sales to continue to contract this year,” said Investec economist Annabel Bishop. “Growth is only likely to emerge late in the first quarter of next year.”

The deterioration in retail sales was broad based, with only food and beverages, pharmacy and medical goods, posting growth. Analysts said the pace of decline was likely to moderate towards year end as lower rates and easier lending criteria supported consumer spending.

Source: Business Day

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