South African business confidence rose in the third quarter, helped by improving optimism about the business climate after the formation of a coalition government and stable electricity supply, a survey showed on Wednesday.

The business confidence index rose to 38 points in the third quarter from 35 points in the prior quarter, according to the survey by the Rand Merchant Bank (RMB) and compiled by the Bureau for Economic Research.

"Fortunately, the widely anticipated interest rate cut in South Africa later this month, on the back of lower consumer inflation and a boost from the introduction of the two-pot retirement system should spur domestic demand through the remainder of the year," Isaah Mhlanga, chief economist at RMB said in a statement.

The South African Reserve Bank is expected to start cutting interest rates from this month for the first time in four years.

The African National Congress lost its parliamentary majority for the first time in 30 years in May, and later formed a broad coalition with several parties including the market-friendly Democratic Alliance.

Additionally, State-owned power utility Eskom managed to keep the lights on for over five months without scheduled blackouts in the country where power cuts have hampered economic growth for over a decade.

However, businesses activity was still constrained especially from weak demand, but the survey indicated conditions are expected to improve in the next quarter.

Retail confidence improved to 45 points from 39 in the previous quarter helped by improvement in durable and semi-durable traders' sales volumes.

Manufacturing sector confidence remained stable 28 points as a drop in production due to declining exports and domestic demand was offset by optimism at new vehicle dealers surging to a one-year high.

Wholesale trade was the most optimistic sector surveyed, with over half of respondents satisfied with prevailing business conditions.