COLUMN: THE CLIFF. Africa’s central banks: Imported easing, local pain

AS the United States Federal Reserve edges closer to cutting interest rates, financial markets across the globe are preparing for a synchronised easing cycle.

After over a year of monetary tightening aimed at cooling inflation, the tone has shifted toward soft landings, accommodative signals and renewed support for growth.

Across emerging markets, pressure is building on local central banks to align with the anticipated global pivot. Yet for African economies, the stakes are far more complex.

Mimicking this global easing cycle without careful consideration of local dynamics may prove not just ineffective—but outright harmful. Imported easing can easily translate into local pain, triggering capital flight, exchange rate instability, inflationary pressures and erosion of policy credibility. There is an old fable, attributed to Aesop, that carries surprising modern wisdom.

A crow, envious of the admiration shown to a peacock for its splendid feathers, collects fallen plumes and fastens them to its own body.

Emboldened by its new appearance, the crow parades into the peacocks’ territory, hoping to be accepted. But the peacocks expose the fraud and chase it away, and when the crow returns to its own kind, even the crows reject it for trying to be something it is not. Stripped of borrowed feathers and respect, the crow ends up worse off than before.

The moral is clear: Imitation without self-awareness or structural readiness leads to failure. For African central banks tempted to follow in the footsteps of global major economies, the lesson is no less relevant. Monetary policy is not a fashion trend; it must be tailored to the economic body it intends to fit. Even scripture speaks to this principle.

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Proverbs 14:15 (NIV) notes, “The simple believe anything, but the prudent give thought to their steps.” And in the Qur’an, Surah Al-Isra (17:36) advises, “Do not pursue that of which you have no knowledge.” These timeless verses underscore the value of discernment over blind imitation—an ethos that central bankers would do well to uphold.

The structural differences between advanced economies and African economies are striking. In the US, inflation has recently begun to ease, largely due to a natural cyclical correction—moderating wages, tightening credit, and a cooler housing market. This gives the Fed space to consider cautious rate reductions. But inflation in Africa is not primarily driven by overheating demand. Instead, it is deeply rooted in food supply shocks, imported fuel costs, currency depreciation and infrastructure bottlenecks.

Countries in the west and Eastern Africa shows how food prices alone constitute more than 40 percent of the consumer price index, magnifying the impact of harvest volatility and global commodity price fluctuations. In such contexts, interest rate cuts do little to relieve inflationary pressures and may in fact worsen them by weakening exchange rates.

This divergence creates what we might call a false signal trap. African central banks may see easing in Washington, Frankfurt, or London and assume it signals a global window of opportunity. But this is an illusion. The risks of imported easing—when implemented without structural backing—are severe. Capital can flee. Currencies can depreciate. Bond markets can lose confidence. And inflation, already persistent, can resurge.

The case of Ghana between 2021 and 2022 provides a sobering lesson. The Bank of Ghana attempted a rate-cutting path amid rising fiscal deficits and declining foreign exchange reserves. Far from calming markets, the move undermined investor confidence.

The Ghanaian cedi went into free fall, inflation surged into double digits and the country was ultimately forced into an IMF-supported debt restructuring. Nigeria, meanwhile, delayed tightening for political reasons as inflation soared, leading to parallel market distortions, FX shortages and weakened monetary credibility.

What both cases share is an absence of synchronised policy discipline. Without credible fiscal reform and macroeconomic coordination, monetary easing is interpreted not as stimulus but as surrender. That’s because Africa’s policy space is limited.

In Kenya, Ghana and Zambia, for example, interest payments alone consume over 40 per cent of domestic revenues. When governments are under fiscal pressure and central banks cut rates, markets fear debt monetisation rather than growth stimulation.

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Even when easing is enacted, the real economy may not respond as expected. Africa’s financial sector is shallow. Private credit to GDP remains below 30 per cent in most countries and banks are often risk-averse. In Tanzania, for example, despite a series of rate cuts in recent years, credit expansion has remained sluggish.

Most banks continue to prefer low-risk government securities over SME or agricultural lending. In such a setting, monetary stimulus becomes a signal without a channel—lower rates that fail to move capital.

Externally, the consequences are no less challenging. From January to June 2025, the Kenyan shilling lost over 8.0 per cent against the US dollar, while the Ghanaian cedi fell by more than 5.0 per cent. With narrowing interest rate differentials relative to advanced economies, further rate cuts may exacerbate currency outflows.

Reserve buffers are already thin and imported inflation risks rise sharply when domestic currencies are weak. Lowering rates under such fragility may backfire by eroding real incomes and squeezing the poorest households. Some African central banks have opted for more measured approaches.

The South African Reserve Bank (SARB), for instance, began a cautious easing cycle in early 2025—cutting its policy rate from 7.75 per cent in January to 7.25 per cent by May. Yet SARB’s tone has been prudent, emphasising the need to guard against FX volatility and inflation expectations.

Governor Lesetja Kganyago noted that any easing would remain conditional, data-driven and reversible. Contrast this with the Bank of Tanzania, which lowered its Central Bank Rate from 6.0 per cent to 5.75 per cent in July 2025, despite stable inflation of 3.2 per cent.

While the intention may be to spur credit and align with fiscal stimulus, analysts have warned that the timing could invite speculative pressure on the shilling and fail to unlock real-sector liquidity. The broader takeaway is that imported easing cannot substitute for grounded strategy.

Africa’s macroeconomic context is uniquely exposed to external shocks, commodity cycles, fiscal fragility and shallow capital markets.

Following global monetary trends without anchoring on local fundamentals is akin to wearing a borrowed suit in a storm—it may appear elegant for a moment, but it won’t hold up when the winds pick up. What Africa needs instead is policy calibration—locally informed, evidence-based and structurally grounded.

Central banks should invest in robust forecasting systems, inflation modeling that captures food and energy volatility, and closer fiscal-monetary coordination. Decisions must be communicated clearly to markets, investors and the public—reinforcing the message that monetary policy is not reactive imitation but deliberate, sovereign stewardship.

Just like Aesop’s crow, Africa must resist the urge to wear foreign feathers before building its own. The path to monetary credibility lies not in copying others’ cycles, but in designing policy for the cycle you are actually in.