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JOHANNESBURG, Dec 14 (Reuters) - South African retail sales unexpectedly fell for the first time this year in October, data showed on Wednesday, suggesting the central bank might continue to hold off raising interest rates in January to take pressure off the economy.
The South African Reserve Bank has hiked the benchmark repo by a total of 200 basis points since early 2014, but has kept it unchanged at 7 percent since the last increase in March as economic growth, traditionally been driven by consumer demand, remains weak.
On Wednesday, Statistics South Africa said retail sales were down 0.2 percent year-on-year in October following a revised increase of 1.6 percent in September.
Analysts polled by Reuters had forecast a 0.8 percent year-on-year increase in October.
The rand extended losses against the dollar after the data, hitting a session low of 13.6900, as investors moved to price out a rate hike in January which in theory would be rand-supportive.
On a month-on-month basis, sales fell by 0.7 percent, but ticked up 0.5 percent in the three months to October compared with the same period last year.
"Retail sales falling to their lowest levels in over two years will have heightened the concerns held by Finance Minister Pravin Gordhan about the health of the South African economy," said Dennis de Jong, managing director at UFX.com.
"The sector appears to have fallen to its knees, and in the economy's current state it's hard to see sales rebounding anytime soon."
In October, Gordhan cut the 2016 economic growth forecast to 0.5 percent from 0.9 percent, highlighting the woes of an economy hit by waning investor sentiment since President Jacob Zuma unexpectedly fired former finance minister Nhlanhla Nene last December.
On Tuesday, the International Monetary Fund said domestic factors such as perceptions of weakening governance and uncertainty about policy direction, would weigh on South Africa's economic growth next year.
Investors are worried about whether the government can implement policies to boost growth amid a probe into Gordhan for his role in setting up a unit at the tax department that police say illegally spied on politicians. Gordhan has denied any wrongdoing.
In October, state prosecutors dropped fraud charges against Gordhan, in a case that rocked financial markets and drew accusations of political meddling. (Reporting by Stella Mapenzauswa; Editing by James Macharia)