Open discussion: Banks’ reactions to Iran war

DAR ES SALAAM: WHEN the Iran war became the defining global shock at the end of February 2026, the market’s first instinct was clear: Oil would rise, inflation would return to centre stage and central banks would have little choice but to turn hawkish.

A month later, that view looks too mechanical.

What has emerged instead is more subtle and more telling. Central banks have not moved in one uniform direction. Some have held rates and toughened their language.

Some have still cut, but with much more caution. Australia tightened. Europe paused and turned more alert. In several emerging markets, easing did not disappear, but it became less comfortable.

The first lesson of this war, then, is not that it forced one global monetary response. It is that it changed the balance of risk.

That distinction matters because monetary policy is not only about the level of the policy rate. It is also about confidence in the path ahead.

Before the war, many central banks were operating in an environment where inflation was easing, growth was uneven, and the question was how far rates could gradually come down without damaging credibility.

After the war, that calculation became more fragile. Oil moved higher. Shipping risk returned. Imported inflation, exchange-rate pressure and second-round price effects came back into focus.

Even where rates did not move, the reasoning around them changed.

This is why the most important post-war development has not been a synchronised wave of hikes.

It has been the collapse of easy forward guidance. Central banks that might once have sounded comfortable suddenly became guarded.

A hold was no longer just a hold. It became a signal of waiting, watching and reassessing.

In that sense, the war has mattered even where the rate itself has not. That is also why the decisions made before February 28 should not be misread.

Many of those earlier moves were not war decisions at all.

They were domestic macroeconomic decisions taken under a different information set.

Kenya’s cut, Egypt’s earlier easing, Nigeria’s late-February move and Tanzania’s first quarter setting were all based on inflation, activity, liquidity and transmission conditions that were already visible at the time.

A later geopolitical shock does not automatically make those decisions wrong.

What it does is force policymakers to rethink whether the next step should still follow the old script.

That reassessment is now visible across both advanced and emerging economies.

The war has not produced a universal tightening cycle, but it has raised the threshold for further easing. Some countries can still justify rate cuts because inflation is falling and real rates remain high. But even there, the tone has narrowed.

The policy room feels smaller.

The confidence is weaker. The margin for error is thinner. For East Africa, this is especially important because the region is not dealing with one shared monetary problem. It is dealing with different banking and transmission realities.

Kenya has used cuts partly to support lending and improve the flow of credit to the private sector.

Uganda has kept its policy stance relatively firm, while showing continued concern about liquidity conditions. Rwanda has already signaled a more vigilant inflation posture.

Tanzania enters this debate from yet another angle: Low inflation, firm growth and a banking sector where credit expansion has remained comparatively strong.

That banking dimension matters. In East Africa, the effect of a policy rate decision depends not only on inflation, but also on how banks are transmitting policy into lending, deposits, liquidity and private-sector financing.

In Kenya, lower rates have been tied closely to the question of whether banks will lend more effectively into the productive economy.

In Uganda, the system still feels restrictive enough that high lending costs remain part of the story even without a fresh rate increase.

In Tanzania, stronger privatesector credit growth means the banking system is already carrying momentum into the second quarter. That changes the interpretation of the next central bank move.

A country with weak credit can justify easing more easily.

A country with stronger credit and solid growth has more reason to stay cautious. And that is why Tanzania’s coming decision matters.

The Bank of Tanzania’s next Monetary Policy Committee sitting is now just 24 hours away and in 48 hours the country is expected to know its Central Bank Rate stance for the second quarter.

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The immediate domestic picture looks steady. Tanzania’s February 2026 inflation was 3.2 per cent.

The latest official position still shows the Q1 2026 Central Bank Rate at 5.75 per cent. Recent GDP growth has been running at around 6.4 per cent.

On the surface, that is a comfortable combination: Inflation inside target, growth still firm and policy not obviously behind the curve. Under calmer global conditions, that mix would strongly support continuity.

It might even support a softer tone. But the issue before the Bank is no longer just where inflation stands today.

It is whether imported risks are about to become tomorrow’s inflation problem.

The war has raised the possibility of higher fuel prices, more expensive freight, pricier imported inputs and broader pass-through into transport and consumer costs. For a country like Tanzania, that creates a serious policy dilemma.

Should the central bank wait for the inflation to show up in the data, or should it send an early signal that it is prepared to defend price stability before those pressures fully arrive? The base case still appears to be a hold at 5.75 per cent.

That would be the most balanced decision. It would recognise that inflation remains well behaved, while also acknowledging that the external environment has become more dangerous.

A hold would fit the broader global pattern seen since late February: Central banks are not panicking, but they are becoming more cautious.

For Tanzania, that would be a prudent stance rather than a passive one. Still, if the Bank chooses to tighten, the likely discussion would center on 25 or 50 basis points.

A 25-basis-point increase, taking the CBR from 5.75 per cent to 6.00 per cent, would be the mildest and most credible tightening option.

It would signal pre-emption without creating an unnecessary shock to credit conditions.

Whilst a 50-basis-point increase, taking the rate to 6.25 per cent, would be a stronger statement.

That kind of move would only make sense if the Bank judged the external shock to be serious enough to threaten the inflation path more meaningfully, especially through fuel, transport and exchange-rate pass-through.

Anything larger than that would be difficult to justify from the current domestic numbers alone.

Yet the most elegant outcome may be a hawkish hold.

Aiming to leave the CBR unchanged while using the statement to make three points clear: First, that imported inflation risks have risen; second, that energy and exchange-rate developments are being watched closely; and third, that future tightening remains possible if those pressures begin feeding into domestic prices.

Such a stance would preserve flexibility while signalling that the era of easy comfort has ended.

At times the most intelligent central-bank response is the one that waits, watches and warns.