Africa’s anticipated interest-rate cutting cycle is losing momentum as a renewed oil shock, triggered by the prolonged Iran conflict, forces central banks back into inflation-fighting mode. Policymakers across the continent, who only months ago were preparing to support slowing economies through lower borrowing costs, are now adopting a far more cautious stance.

This shift comes as crude prices surge above $100 per barrel, reigniting imported inflation pressures before price stability has been fully restored. Between March and May, central banks in South Africa, Morocco, Mozambique, Namibia, Kenya, Egypt, Ethiopia, Uganda, Tanzania, Nigeria, and Ghana all held benchmark interest rates steady. This signals a coordinated move away from easing expectations towards policy caution.

The change marks an abrupt reversal for African central banks, which had spent much of the past year benefiting from moderating inflation after two years of aggressive monetary tightening. Escalating geopolitical tensions involving the United States, Israel, and Iran are now threatening to derail the continent’s fragile disinflation progress through higher fuel, transportation, food, and production costs.

The risk is especially acute for the continent’s largely oil-importing economies, many of which remain vulnerable to exchange-rate volatility, rising debt-servicing costs, and weak consumer purchasing power. The World Bank warned in its latest Africa Economic Update that higher fuel and food prices could worsen inflation pressures, raise domestic borrowing costs, and constrain already stretched fiscal positions.

“The resulting impact of higher domestic food and fuel prices on consumer price inflation could lead to rising interest rates not only at home but also abroad,” the multilateral lender stated. “Higher inflation is likely to erode households’ purchasing power, while increases in domestic interest rates may discourage household consumption and dampen domestic investment.”

For investors, the renewed inflation shock is also reshaping expectations across African bond, currency, and equity markets. Higher-for-longer interest rates could raise sovereign borrowing costs, weaken portfolio inflows into frontier markets, and delay economic recovery as businesses and households face tighter financing conditions.

According to DealMakers Africa, inflationary pressures linked to higher fuel costs and currency volatility are already increasing financing risks and complicating investment decisions across several African economies. “At the same time, major African economies face heightened exposure to currency volatility, which can complicate deal structuring and valuation,” said Marylou Greig, editor of the South African-based firm.

At the onset of the war in March, S&P Global Ratings projected that commercial long-term borrowing by African sovereigns would rise to $155 billion this year, up from $140 billion issued in 2025. The credit rating agency noted that the increase will be driven by a combination of maturing debt obligations and ongoing fiscal financing needs across the continent.

South Africa's Inflation Scare

In South Africa, the central bank kept its benchmark repo rate unchanged at 6.75 percent in March for a third consecutive meeting, extending a pause in what markets had expected to become an easing cycle. South African Reserve Bank governor Lesetja Kganyago warned that rising oil prices and global uncertainty could reignite inflationary pressures.

These concerns were validated as inflation accelerated to a 20-month high in April. Petrol prices recorded their sharpest increase this century, pushing consumer inflation to 4 percent year-on-year from 3.1 percent in March, its highest level since August 2024. Goldman Sachs revised its outlook for South Africa, forecasting two additional 25-basis-point rate hikes this year instead of cuts.

Namibia maintained its benchmark repo rate at 6.5 percent for a third consecutive meeting, partly to preserve the Namibian dollar’s peg to the South African rand. Policymakers warned that exchange-rate volatility and spillover effects from geopolitical tensions continued to threaten the inflation outlook despite moderating domestic price pressures.

East Africa Faces Renewed Pressure

In Kenya, the central bank held rates at 8.75 percent in April, pausing a nearly two-year easing cycle as inflation accelerated to 5.6 percent from 4.4 percent in March — the highest level in two years. Transport costs surged by 10 percent year-on-year amid rising fuel prices, while food inflation also picked up sharply, underscoring the growing impact of imported energy costs on household spending.

Ethiopia emerged as one of the economies hardest hit by the oil shock, with inflation accelerating to 11.7 percent in April after five consecutive months in single digits. The surge was driven largely by a 35 percent increase in petrol prices and rising food costs. The National Bank of Ethiopia kept its benchmark interest rate unchanged at 15 percent, warning that geopolitical tensions posed significant upside risks to the inflation outlook.

In Uganda, policymakers left rates unchanged for a seventh consecutive meeting at 9.75 percent, arguing that the current policy stance remained appropriate despite mounting risks from the Middle East conflict. Tanzania maintained its benchmark rate at 5.75 percent even as inflation climbed to a near three-year high in April, reflecting rising transportation and consumer goods prices.

The Bank of Mozambique maintained its benchmark policy rate at 9.25 percent, keeping borrowing costs at their lowest level since December 2015 and extending a pause in the easing cycle that began in 2024. However, inflation accelerated for a third consecutive month to a six-month high of 4.41 percent in April, driven by severe flooding and fuel supply constraints.

Arab Economies Hold Rates Too

Morocco also maintained its benchmark interest rate at 2.25 percent for a fourth consecutive meeting as policymakers balanced resilient economic growth against rising global uncertainty. Although the North African economy experienced mild deflation earlier this year, rising global commodity prices pose an upside risk to inflation.