RETAIL sales fell by a smaller-than-expected margin in January on an annual basis, backing expectations the central bank will leave interest rates steady next week.

RETAIL sales fell by a smaller-than-expected margin in January on an annual basis, backing expectations the central bank will leave interest rates steady next week.

Stats SA said yesterday retail sales fell by 1,7percent year-on-year in January at constant prices, compared with a revised 3,8percent contraction in December.

Economists polled by Reuters had expected a 2,5percent decline.

In the three months to January, sales were down 4,1percent compared to the same period a year ago, also at constant prices.

The retail sector has been contracting for more than a year but the rate of decline has slowed.

A Bureau for Economic Research survey on Tuesday showed consumer confidence rose to 15 in the first quarter, its biggest quarter-on-quarter rise in five years.

Analysts said the January retail sales print showed demand was on the mend.

"It shows a recovery is certainly under way," said George Glynos, ETM managing director.

However, consumer demand will likely be sluggish through 2010, after a recession slashed about 900000 jobs last year and as consumers are highly indebted.

Glynos said the stronger-than-expected reading in the retail sector backed the case for leaving the repo rate steady at 7,0percent next week.

Targeted consumer inflation slowed to 6,2percent on an annual basis in January, and the central bank expects it to dip back to its 3percent to 6percent target band in March. - Reuters