Retail sales slide

Johannesburg - South Africa's retail sales contracted by a worse than expected 7.0% annually in August, stirring hopes for another cut in interest rates despite central bank Governor Tito Mboweni's hints against it.

Statistics South Africa said on Wednesday retail sales fell after a 4.1% decline in July at constant prices. The August contraction was deeper than the consensus of 3.2% seen by analysts in a Reuters poll.

Consumers' spending helped lift the economy to average growth of 5 percent between 2003 and 2007, and depressed demand in the sector could give the central bank reason to add to the 500 basis points it has knocked off rates since December.

"For interest rates, it would still help the case that we can see a further rate cut in the cycle. said Dave Mohr, economist at Citadel. "The consensus says we've probably passed the cycle of rate cuts but numbers like these support the case that we could see another rate cut."

Central bank Governor Tito Mboweni said late on Tuesday monetary authorities had offered "sufficient" policy accomodation to help pull the economy out of a "mild" recession.

Household spending has cooled sharply over the past year, with consumers grappling with high debt levels and job insecurity. Stats SA said in the three months to August sales fell by 6.0% in compared to the same period a year ago, also at constant prices.

"What it is telling us is that the consumer is still taking strain... retailers are battling. I don't see any significant improvement until next year," said Colen Garrow, economist at Brait.

- Reuters