The figures indicated that the domestic economy needed no further stimulus, analysts said, and pointed to limited personal income tax cuts when Finance Minister Trevor Manuel tables his annual budget next week.

Analysts said the number also vindicated the Reserve Bank’s decision to keep interest rates unchanged at its first monetary policy committee meeting for the year, held this month.

Figures released yesterday by Statistics SA showed that retail sales, the main indicator of consumer demand, grew from a revised 7% in October.

In the three months to November sales were 6,8% higher compared with the same period last year.

“Low interest rates have created a consumer-friendly environment as reflected by the current level of economic growth,” Absa economist Monale Ratsoma said.

He said further interest rate cuts might not be necessary for further economic stimulus.

“However, they could be necessary if inflation threatens the 3% lower limit of the Bank’s 3%-6% inflation target,” Ratsoma said.

Consumer demand has been buoyed by the 650 basis points cut in interest rates since 2003, bringing the repo rate to 7%, and sending spending to record highs.

“Strong consumer spending over the festive season should keep sales growth at high levels in December, while low interest rates and good growth in personal disposable incomes should continue to boost spending early this year,” Nedbank economist Annari de Waal said yesterday.

At its monetary policy committee meeting last week, the Bank listed strong consumer spending and credit demand, as well as higher food inflation and persistently high oil prices, as threats to the inflation outlook.

Bank governor Tito Mboweni pointed out that two of the main risks, oil and food prices, were exogenous factors, and the Bank was disinclined to react to them unless they had second-round effects, as retail price rises led to demands for higher wages.

“To date, however, there have not been significant inflationary consequences, although this could change if demand growth were to accelerate unchecked,” Mboweni said when announcing the decision to hold rates.

Ratsoma said: “It is very unlikely that we would see a rate hike given the positive inflation outlook. The robust domestic demand could impact negatively on inflation if supply constraints emerge.”

De Waal said a neutral policy stance was expected for the remainder of the year, unless the rand strengthened significantly and manufacturing output slid into negative territory.

“There is no interruption to aggressive demand and consumers are still being supported by low prices and low borrowing costs. This means interest rates could remain flat for a while,” said Mandla Maleka, an economist at Eskom.

“From an inflation perspective, the only good thing is that retail inflation is at 1%, which is still negligible,” said Michael Keenan, an analyst at Econometrix Treasury Management.

“The figures reinforce our view that interest rates will be left on hold for at least the first half of this year.” With Reuters