Africa's interest-rate cutting cycle faces mounting pressure from surging oil prices and the prospect of severe weather disruption, risking a resurgence of inflation across the continent and forcing policymakers to abandon efforts to lower borrowing costs. Brent crude reached $110 a barrel by Wednesday after climbing from around $103.50 in early September, a rise of 14.4 percent over the month. The World Meteorological Organization reported a 100 percent probability of El Niño conditions developing, with effects expected to persist through February 2027. The combination threatens to reverse the disinflation that had allowed several central banks to lower borrowing costs after an extended period of restrictive monetary policy.
Higher oil prices are increasing fuel, transport and production costs, while disrupted rainfall and reduced agricultural output could push food prices higher across vulnerable economies. Food accounts for as much as 50 percent of consumer price indices in some African economies, meaning poor harvests and higher fertiliser and transport costs can significantly erode household purchasing power. El Niño's impact will vary across regions. East Africa and the Greater Horn will face drought risks, while equatorial countries including Kenya, Somalia, southern Ethiopia and Uganda expect above-average rainfall from October to December. Southern Africa could see below-normal rainfall during its October-April rainy season, while parts of Mali, Niger, Nigeria and Chad in West Africa and the Sahel expect below-normal precipitation.
The divergence in monetary policy is already visible. Nigeria, Zambia, Zimbabwe and Angola delivered substantial rate cuts in September, with Nigeria reducing its policy rate by 350 basis points to 23 percent, Zambia and Zimbabwe each cutting by 250 basis points, and Angola lowering its benchmark by 100 basis points. However, South Africa and Uganda have moved in the opposite direction. The South African Reserve Bank raised its policy rate by a cumulative 50 basis points to 7.25 percent through increases in 2026 as inflation accelerated, with headline inflation rising from 3.2 percent in the first quarter to 4.5 percent in the second quarter. The Bank of Uganda raised its benchmark rate by 225 basis points to 12 percent at an emergency meeting, taking borrowing costs to their highest level since 2017. Uganda's annual inflation rose to 4.6 percent in September, its highest level since June 2023. Rwanda also tightened policy, raising its benchmark rate by 50 basis points to 8.75 percent in August, with the World Bank analysis putting annual inflation at 15.9 percent in August.
Angelika Goliger, EY Africa chief economist, said the continent's monetary-policy cycle is becoming increasingly uneven. "While earlier disinflation has created room for rate cuts in some economies, renewed energy and food-price pressures mean central banks are likely to remain cautious." The South African Reserve Bank warned that the energy shock is spreading beyond fuel prices into core inflation and that policymakers must prevent price shocks from becoming entrenched. "Policy must guard against the risk that persistent fuel, administered price and food shocks become embedded in expectations and wages," the central bank said.
African policymakers are also confronting a less supportive international financial environment as the Federal Reserve, the Bank of Japan and the European Central Bank have moved towards tighter monetary policy. A stronger dollar would increase the local-currency cost of servicing dollar-denominated debt, while currency depreciation could make imported fuel, food and industrial inputs more expensive. The International Monetary Fund has warned central banks against easing policy prematurely, with managing director Kristalina Georgieva urging policymakers to maintain their focus on price stability and suggesting a hawkish bias may be appropriate.