SA & US Economic Review: Repo Rate, Fed Updates & M3 Growth

Our weekly podcast by Kevin Lings:

SARB focuses on lowering inflation expectations

In this podcast, STANLIB’s Chief Economist, Kevin Lings, focuses on the latest decisions by the US and SA central banks to hold interest rates unchanged. In SA the decision reflects the SARB’s determination to lower inflation expectations, as well as risks to inflation from food and energy. In the US, the decision was widely expected. Instead, attention focused on the nomination of Kevin Warsh as the next Fed chair and what it means for monetary policy.

The focus areas during the week included:

The S&P 500 index rose by a modest 0.3% after declining by 0.7% over the preceding two weeks. In the first month of the year, the market was up 1.4%, which compares with a gain of 2.7% in January 2025. Towards the end of the week, US financial markets were disrupted by a heightened expectation that President Donald Trump would nominate Kevin Warsh as the next US Federal Reserve (Fed) chair (which was confirmed on Friday afternoon). In response, the US dollar strengthened (mainly because Warsh is seen as a credible appointment), while the reaction in the bond market was mixed. Shorter-dated US bonds recorded a small rally, while longer-dated bonds were a little weaker, potentially reflecting concerns that Warsh might push to lower the Fed's holdings of government bonds. An initial sell-off in US equity markets picked up momentum during the day, with investors seeming to question the timing and extent of interest rate cuts under Warsh's leadership of the Fed.

The gold price declined by 7.8% on Friday while the silver price fell by 12.9%, reflecting Warsh’s credibility. In contrast the oil price continued to move higher, rising to almost $70 a barrel (Brent) hurt by an escalation of geopolitical tensions between the US and Iran.
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Japan’s stock markets ended the week lower, with the Nikkei 225 Index declining 1% andthe broader TOPIX down 1.8%. The technology segment of the market was weigheddown by concerns about the sustainability of massive artificial intelligencespending, while yen strength dampened the earnings prospects of Japan’sexport-oriented companies.
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SA’s All-Share Index ended the week down a substantial 1.8%, mainly as a result of the lower gold price.The Resource 10 equity index declined by 4.6%. Year-to-date the domestic equitymarket is up 3.6% but it was 8.1% higher at the end of the trading day onThursday 29 January 2026.
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Despitestrengthening by 0.5% against the euro in the second half of the week, the dollarended the month 1.3% weaker against the euro. This largely reflected the uncertainty created by the US’s actions in Venezuela,Greenland and Iran. In contrast, the emerging market currency index gained 1.3%against the dollar in the month, while the rand was the second-best emergingmarket currency in January, strengthening by 3.3% against the dollar. The rand has closely tracked precious metal prices over the past month, benefiting fromflows into gold and other commodities. The rand has also had some underlyingsupport from SA’s improving economic fundamentals.
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On Friday, Trump announced that he had nominated Kevin Warsh, a formerFed governor, to head the Fed. If confirmed by the Senate, Warsh will succeed the current chair, Jerome Powell,in May 2026. Warsh served on the Fed’s board between 2006 and 2011. At the time his banking sector experience was seen as important in helping the Fed to develop its emergency response at the peak of the global financial market crisis. At the time, Warsh was hawkish on inflation risks, arguing for higher interest rates even amid a painful increase in the unemployment rate after the financial crisis. This stance seems to have softened in recent times. Recently, Warsh has argued for lower interest rates, in part due to optimism that AI will raise potential growth and cool inflation. It is expected that he will try to build consensus within the Federal Open Market Committee (FOMC) on cutting interest rates further this year, especially if inflation slows meaningfully more. Importantly, Warsh did oppose Fed purchases of government bonds after the financial crisis and has maintained his view that the central bank should not hold large quantities of government securities. We will only get a true sense of Warsh's views, leadership style, and influence over the Fed after he takes up his position.
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As expected, the Fed decided to leave its policy interest rate bandunchanged at 3.5% to 3.75%. (The decision was support by 10 of the 12voting members of the FOMC. The two dissenting policymakers favoured a cut of25 bps). This follows three consecutive interest rate cuts of 25 bps each. The FOMC statement noted that the US economy is experiencing solid economic growth, signs of stabilisation in the labour market and an elevated rate of inflation. The latest FOMC statement and subsequent press conference by Powell suggest that the Fed is likely to keep interest rates unchanged for the remainder of Powell’s term, which ends in May 2026. However, the FOMC still seems to have an easing bias and might be willing to reduce interest rates further in H2 2026 as the inflationary effects of the tariff increases fade.
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Although the US Senate passed a funding package late on Friday, the agreement still needs to be approved by the House of Representatives, which is not expected to convene until today(Monday). This means that the US government is back into a shutdown with effect from 1 February 2026 – although it is only a partial government shutdown. The economic effects of this shutdown are expected to be minimal, especially if the House of Representatives is able to finalise the spending plan early next week.

US durable goods orders rose by 5.3% m/m in November (after declining by 2.1% m/m in October), well above market expectations for an increase of 1% m/m. The larger-than-expected increase was driven by a 98% surge in non-defence aircraft orders (in November, Boeing received orders for 164 aircraft). Core durable goods orders (which exclude transportation equipment) also performed well, increasing 0.5% compared to expectations for no change. In particular there was a 3.8% rise in orders for computers and related products, which suggests that AI‑related spending remained strong in Q4 2025.

In January 2026 US consumer confidence (as measured by the Conference Board) fell to its lowest level since May 2014. This was well below market expectations. The survey results showed that US consumers’ views on the economy and especially the labour market weakened appreciably. However, consumer spending has remained relatively robust in recent months (which is something Powell highlighted in the most recent FOMC press conference).

US weekly jobless claims were 209 000 for the week ended 24 January, which was down from the prior week’s readingof 210 000 applications for unemployment benefits. Continuing claims,meanwhile, fell to about 1.83 million in the week ended 17 January, the lowestlevel since September 2024. Overall, the US labour market remains solid, butunexciting.
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US PPI increased by 0.5% m/m in December 2025, well above market expectations for a rise ofonly 0.2% m/m. The larger-than-expected increase was mainly due to serviceprices, which increased by a substantial 0.7% m/m. Roughly 70% of the increasein service prices stemmed from a 1.7% jump in margins received by wholesalersand retailers.
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The South African Reserve Bank (SARB) decided to keep the repo rate unchangedat 6.75% at its Monetary Policy Committee (MPC) meeting on Thursday. The decision was not unanimous: two of the sixMPC members argued in favour of a 25 bps reduction. Although the decision wasin line with market expectations, many analysts had expected a cut of 25 bps.Since August 2024, the SARB has cut interest rates by a total of 150 bps,taking the repo rate down to its lowest level since October 2022. The MPC viewsthe current interest rate as “moderately restrictive”. In terms of inflation,the MPC believes that December’s inflation rate of 3.6% is the peak and that“inflation will slow from here”. In fact, the bank has lowered its near-terminflation forecast, helped by a stronger rand and a lower oil price assumption.It said it was a little concerned about food inflation, especially meat prices,which are being affected by a serious outbreak of foot and mouth disease. It isalso concerned about electricity prices, given that NERSA’s price correctionmay rise from R54 billion to R76 billion. The MPC did, however, acknowledgethat inflation expectations have fallen: the latest survey shows longer-termexpectations at record lows. Overall, the MPC’s decision to keep the repo rateon hold reflects the bank’s ongoing very conservative approach to monetarypolicy, especially since SA’s core inflation is at 3.3%, the petrol price isscheduled to decline meaningfully further in February, the trade-weighted randhas strengthened by more than 10% over the past year (and will start toundermine the competitiveness of manufactured exports), and the MPC believesthat inflation will slow from here. Clearly, the bank is adopting thisconservative approach to further entrench its commitment to the new 3%inflation target and thereby ensure that inflation expectations moderatefurther.
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National Treasury released the December 2025 statement of revenue,expenditure and borrowing showed that government finances, from a tax collection perspective, ended the year on a strong note. Gross tax revenues wereR227.7 billion for December, growing by 11.9% y/y, which is an acceleration from November’s growth rate of 4.4% y/y. The December growth rate is well abovethe revised 8.1% annual growth that is required to achieve the Medium-TermBudget Policy Statement (MTBPS) tax revenue collection estimates for 2025/26. A key driver of revenue growth was strong collection of tax on corporate income, which rose by a significant 14% y/y, helped by robust mining profits. At the same time, personal income tax (PIT) collection continued its solid growth, rising by 8.6% y/y compared to 3.5% y/y in November. PIT has been buoyed bystrong withdrawals from the “two-pot” retirement system and the Minister ofFinance’s decision to not allow for fiscal drag in the National Budget. Incontrast, government’s expenditure grew by a modest 6.4% y/y, which is belowthe budgeted growth of 7.8%.
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In December 2025, SA’s money supply(M3) grew by8.2% y/y, which isslightly lower than the November increase of 8.3% y/y. Despite the slightdeceleration, this is the second time money supply has grown above 8% sinceAugust 2023. In 2025 money supply grew at an average of 6.8% from 6.3% in 2024.
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SA’s privatesector credit extension rose by a significant R74.7 billion (+1.5% m/m) in December, following a rise of R39.2 billion(+0.8% m/m) in November. Annually, private sector credit extension growthcontinued to accelerate. It was 8.7% y/y, up from 7.8% y/y in November, thefastest rate of growth in credit since October 2022. The market expectedprivate sector credit to grow by a more modest 7.7% y/y (Bloomberg). Themonthly breakdown of credit extension reveals that corporate credit continuedto drive most of the increase, rising by a robust R69.1 billion (+2.4% m/m) in themonth. In contrast, consumer credit increased by a much more modest R5.6billion (+0.3% m/m). In general, household credit remains muted and disappointing(especially mortgage credit), although it accelerated to 3.8% y/y in December from3.5% y/y growth in November. Corporate credit isexpected to maintain strong growth in 2026, helped by ongoing renewable energyprojects as well as other investment initiatives – off a very low base.Importantly, credit growth should not pose any inflation concerns for the SARB.
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In December 2025, SA’s producer price index (PPI) rose by 0.2% m/m,which is the first time producer prices have increased since August 2025. The increase was almost entirely due to higher fuel prices. TheDecember increase was below market expectations for a rise of 0.3% m/m(Bloomberg), while the annual rate of change in PPI was measured at 2.9% y/y,unchanged from November, and below market expectations for PPI to accelerate to3% y/y. In 2025, producer inflation averagedonly 1.5%, lower than the 3% recorded in 2024 and 6.9% in 2023. Producerinflation should remain close to the SARB’s inflation target this year, givenrelatively well-contained manufactured food inflation (driven by loweragricultural prices) and muted producer petrol inflation.
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The Eurozone economy grew by 1.5% in 2025, up from 0.9% in 2024. It surpassed theEuropean Commission’s (EC) forecast for growth of 1.3%. Stronger investment,household consumption, and exports boosted output, overcoming significanteconomic and political uncertainty. In the fourth quarter, gross domesticproduct (GDP) expanded by 0.3% q/q, which was slightly better than marketexpectations and matched the growth rate recorded in Q3 2025. In Q4 2025,accelerating growth in Germany, Spain, and Italy helped to offset slow growthin France. Interestingly, though, the German government lowered its 2026economic growth forecast from 1.3% to 1%. This is still significantly betterthan the 0.2% growth rate achieved in 2025. Projected GDP growth in 2027 wasreduced slightly from 1.4% to 1.3%. Economy Minister Katherina Reiche said thatthe assessment was “slightly more cautious” because large economic and fiscalpolicy measures (large fiscal policy infrastructure stimulus) were takinglonger to materialise than previously assumed.
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The Riksbank (Sweden’s central bank) kept its policy interest rateunchanged at 1.75%, in linewith market expectations. It reiterated that policy would stay at this level“for some time to come” – which we assume means for all of 2026, at least.
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Bloomberg reported that 13 of 20 Chinese provinces that have publiclyreleased their 2026 economic targets have lowered their GDP growth goals from last year. Most of the provinces reducedtheir GDP targets by half a percentage point or shifted to a lower range.Provinces that made the change include vital coastal provinces such asGuangdong and Zhejiang.