SA Retail Sales Update

• Retail sales growth slowed in March to 2.8% y/y, from 3.9% y/y (revised from 3.8% y/y), but grew at a slightly faster pace than the 2.4% y/y expected by market consensus.
• On a seasonally adjusted basis, month on month retail sales fell 0.9%. Compared to the first quarter of last  year, retail sales increased 3.0% in Q1.13.
• Virtually all of the main categories of retailers registered an increase in sales growth in March with the largest contribution of 1.4%, to headline retail sales of 2.8% y/y, stemming from general dealers. The only category in which sales volumes fell was in household furniture, appliance and equipment and this deducted 0.3% from headline sales.
• Developments in the retail space in Q1.13 suggest that household finances have been under some strain on the back of rising inflation during Q1.13 coupled with deleveraging by consumers. While current growth in unsecured credit, at 27% y/y, is fairly strong, the rate has been slowing since the start of the year. Moreover, there is a potential for a further gradual slowing in unsecured credit growth as regulators and lenders have adopted a more cautious stance. This is likely already contributing to dampening retail sales growth somewhat.
• In terms of the implications for monetary policy, it is likely that the SARB will keep interest rates unchanged at next week’s MPC meeting. It can be expected that the SARB will continue to highlight the risks to growth prospects but until there is a meaningful deterioration in both domestic and offshore economic conditions it is likely that the SARB will hold off on further interest rate cuts at this stage.
• There are a number of considerations which support a no change interest rate verdict. Since the beginning of the year, the rand has depreciated and should this trajectory be sustained, the impact will feed through to inflation with a lag of 12 – 18 months. With interest rates at historic lows a rate cut of 25bpt would only be beneficial at the margin. With a number of developed and emerging market economies resuming monetary easing, a similar move by the SARB could undermine the carry trade and impact bond flows. This would be undesirable in light of the deficits on the trade and current accounts, which are being primarily financed by portfolio flows that can easily be reversed. 

Source: Investec