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Johannesburg - South Africa's annual inflation came in below expectations in April while retail sales growth slowed for the third month in a row, backing the case for leaving interest rates at a three-decades low for longer.
Ten out of 28 analysts saw rates being steady throughout 2011, in a Reuters poll two weeks ago.
The South African Reserve Bank's Monetary Policy Committee (MPC) last week left the repo rate steady at 5.5% for the third time this year, but hinted at rate increases in forecasting that inflation would briefly breach its target.
The bank said it would be "vigilant" about any price pressures emanating from domestic demand, which was relatively restrained for now.
Bonds weakened after those hawkish comments last week but the market rallied on Tuesday, with yields falling across the curve as dealers curbed their anticipation of an earlier-than-expected rate rise.
Data on Tuesday showed annual inflation quickened slighty to 4.2%, lower than expectations of a 4.4% rise, from 4.1% in March.
"I think (the CPI data) will set the trend for what we'll see in the second half of this year, where inflation surprises forecasters to the downside," said George Glynos, managing director at ETM.
"It's why we believe rate hikes, if there are any, will be pushed out to well into 2012."
Forward rate agreements rates also pulled back after the inflation data.
"The (FRA) market remains biased towards a September rate hike although the rate declined by 10 basis points to 5.94%," said Tertia Jacobs, economist at Investec Capital Markets.
Demand recovery slow
The central bank reduced interest rates by 650 basis points between December 2008 and December 2010. The next move in rates is up but the bank does not want to risk choking demand and the key manufacturing sector by tightening policy before the recovery is fully entrenched.
Tuesday's data showed the recovery in expenditure remained hesitant, with retail sales growth slowing to 5.1% year-on-year in March compared to a downwardly revised 5.5% in February.
Although retail sales should remain in positive territory, a weak labour market and high debt levels are expected to constrain robust growth in demand.
"The MPC is likely to continue with its wait-and-see policy until there is greater evidence of more generalised inflation or price pressures emanating from robust domestic demand," said Nedbank in a note.
"We still expect the Reserve Bank's MPC to delay its first hike until early 2012 as an early interest rate increase would risk curbing the economic recovery." Nedbank said.
The central bank's next meeting is in July.
Ten out of 28 analysts saw rates being steady throughout 2011, in a Reuters poll two weeks ago.
The South African Reserve Bank's Monetary Policy Committee (MPC) last week left the repo rate steady at 5.5% for the third time this year, but hinted at rate increases in forecasting that inflation would briefly breach its target.
The bank said it would be "vigilant" about any price pressures emanating from domestic demand, which was relatively restrained for now.
Bonds weakened after those hawkish comments last week but the market rallied on Tuesday, with yields falling across the curve as dealers curbed their anticipation of an earlier-than-expected rate rise.
Data on Tuesday showed annual inflation quickened slighty to 4.2%, lower than expectations of a 4.4% rise, from 4.1% in March.
"I think (the CPI data) will set the trend for what we'll see in the second half of this year, where inflation surprises forecasters to the downside," said George Glynos, managing director at ETM.
"It's why we believe rate hikes, if there are any, will be pushed out to well into 2012."
Forward rate agreements rates also pulled back after the inflation data.
"The (FRA) market remains biased towards a September rate hike although the rate declined by 10 basis points to 5.94%," said Tertia Jacobs, economist at Investec Capital Markets.
Demand recovery slow
The central bank reduced interest rates by 650 basis points between December 2008 and December 2010. The next move in rates is up but the bank does not want to risk choking demand and the key manufacturing sector by tightening policy before the recovery is fully entrenched.
Tuesday's data showed the recovery in expenditure remained hesitant, with retail sales growth slowing to 5.1% year-on-year in March compared to a downwardly revised 5.5% in February.
Although retail sales should remain in positive territory, a weak labour market and high debt levels are expected to constrain robust growth in demand.
"The MPC is likely to continue with its wait-and-see policy until there is greater evidence of more generalised inflation or price pressures emanating from robust domestic demand," said Nedbank in a note.
"We still expect the Reserve Bank's MPC to delay its first hike until early 2012 as an early interest rate increase would risk curbing the economic recovery." Nedbank said.
The central bank's next meeting is in July.
