African Central Banks Pivot to Easing as Inflation Retreats
- Jan 20
- 9 min read
ACCRA, Ghana (January 16, 2026) – African central banks are increasingly shifting from monetary tightening to easing as inflation rates fall to multi-year lows across the continent. After aggressive interest rate hikes in 2022–2023 to tame price surges, policymakers in countries from Ghana to Kenya have begun cutting benchmark rates in response to sharply lower inflation. The trend signals a new phase of monetary policy aimed at supporting growth now that earlier inflationary pressures – driven by food, fuel, and currency shocks – are receding.
Ghana: Aggressive Easing as Inflation Plunges
Ghana’s central bank has led this pivot with one of the world’s fastest easing cycles. The Bank of Ghana slashed its policy rate by a cumulative 1,000 basis points in 2025, taking the benchmark rate down to 18%. This aggressive easing was enabled by a dramatic fall in inflation: annual consumer price growth slowed to 5.4% in December 2025, the lowest level in over two decades. Inflation is now well within the central bank’s 6–10% target band, a sharp turnaround from the 50%+ rates seen during Ghana’s 2022 debt crisis. Citing “broadly improved” macroeconomic conditions and a “significant drop in inflation,” the Bank of Ghana’s Monetary Policy Committee justified the latest rate cuts as consistent with a stable outlook. Officials project inflation will remain around the target into the first half of 2026, underpinned by tight fiscal discipline and rebuilt foreign exchange reserves that are anchoring the cedi’s value. The Ghanaian cedi indeed strengthened in late 2025 – appreciating about 3–4% against major currencies in recent weeks – reflecting renewed investor confidence. With price stability regained, Ghana is now focused on reviving credit growth and economic expansion after a prolonged squeeze, and Fitch analysts expect further rate cuts toward 14% by end-2026.
Nigeria: On Hold, But Poised to Ease in 2026
Nigeria’s central bank, by contrast, has trodden more cautiously. After an initial 50 bps rate cut in September 2025 – the first easing move since 2020 – the Central Bank of Nigeria surprised observers at its November meeting by holding the benchmark Monetary Policy Rate at 27%. The hold came despite an encouraging downtrend in inflation, which slowed for a seventh straight month to 16.0% in October 2025, roughly half the peak level seen after the mid-2023 currency devaluation and fuel subsidy removal. Governor Olayemi Cardoso argued that inflation was “still too high”and must decline further toward single digits before more rate cuts are warranted. In a sign of optimism, however, the central bank eased liquidity by lowering its bank deposit facility rate, a de facto loosening aimed at encouraging lending. Analysts say this adjustment “significantly… signal[s] confidence in both the inflation trajectory and FX stability” in Nigeria. The naira has stabilized after last year’s turmoil, bolstered by improved reserve buffers (now around $47 billion) and stricter currency management. With the next policy meeting deferred to February 2026, markets anticipate Nigeria will begin cutting the MPR in Q1 2026 if disinflation persists. Finance officials have hinted at a possible 75–100 bps rate cut in late February, with scope for as much as 700 bps of easing over the course of 2026should inflation continue to trend downward. Still, the central bank’s overriding priority remains entrenching price stability – Nigeria is “not confusing disinflation with victory” – so any easing will be gradual and contingent on inflation staying on a clear glide path to single digits.
Egypt: Resuming Cuts as Prices Cool
After a year of extraordinary price instability, Egypt has pivoted back toward monetary accommodation. The Central Bank of Egypt delivered a 100 bps rate cut at its final 2025 meeting, bringing the overnight deposit rate down to 20% (lending rate 21%). This marked the fifth rate reduction since mid-year, as officials gain confidence that inflation is finally easing after peaking above 30% during the Egyptian pound’s devaluations. Headline inflation averaged about 14% in 2025, down from 28.3% in 2024, and the central bank projects further decline toward its 7% ±2% target by end-2026. The surprise fiscal reforms in late 2025 – including subsidy cuts – did not reignite price spirals as feared; instead, monthly inflation has decelerated, indicating underlying pressures are abating. With price growth clearly on a downward trajectory, policymakers now see room to support Egypt’s economic recovery. The CBE characterized the December rate cut as a shift “toward monetary accommodation” amid “easing inflation and economic stability.”However, it also struck a cautious tone, emphasizing data dependence. Core inflation (12.5% in November) remains above the comfort zone, and authorities are wary of upside risks like global oil price swings or a potential currency adjustment. As a result, further easing in 2026 is likely to be gradual. By signaling a turn toward growth support while maintaining a vigilant eye on inflation expectations, Egypt’s central bank aims to balance relief for borrowers with the hard-won credibility it rebuilt through last year’s tightening cycle. The Egyptian pound has been broadly stable in the official market for months, and improving external accounts – aided by Gulf investments and revived tourism – have reduced devaluation pressures, giving the CBE space to carefully lower rates without undermining the currency.
South Africa: Cautious Outlook Despite Anchored Inflation
South Africa’s Reserve Bank (SARB) has adopted a cautious approach to easing, even as inflation falls to the lower end of its target range. In November 2025, the SARB cut its repo rate by 25 bps to 6.75%, the first rate reduction under a newly tightened inflation framework. South Africa formally shifted to a 3% point target (from a 3–6% range) last year, aiming to entrench permanently lower inflation. With headline inflation at just 3.6% in October – barely above the new target and within the 1-percentage-point tolerance band – the central bank judged it had “scope… to make the policy stance less restrictive”. Governor Lesetja Kganyago noted that a host of positive developments had improved the outlook, from the country’s removal from an FATF “grey list” to a credit rating upgrade and a strengthening rand. Indeed, the South African rand hit its best level against the dollar since 2023 in late 2025, and government borrowing costs have fallen, reflecting investor confidence in the disinflation trend. Even so, the SARB is signaling that any further rate cuts will be very measured. Kganyago stressed the need to “deliver 3% inflation over the medium term” and not become “indifferent” within the tolerance band. Analysts interpret this to mean the SARB will hold or cut only modestly in the first half of 2026, ensuring inflation expectations truly anchor at the 3% level before larger easing steps. Barring major shocks, South Africa could gradually lower rates later in 2026, but the central bank has made it clear it won’t sacrifice hard-won credibility for short-term stimulus. In effect, South Africa is “buying” lower long-term rates with a stronger anti-inflation commitment – preferring slow, deliberate cuts to avoid any resurgence of price or currency instability.
Kenya: Steady Rate Cuts Amid Stable Prices
Kenya stands out for its proactive monetary easing in an environment of low inflation. The Central Bank of Kenya (CBK) implemented its ninth consecutive rate cut in December 2025, lowering the policy rate by 25 bps to 9.0%. This brought Kenyan interest rates to their lowest since early 2023, reversing the steep hikes enacted during the global inflation spike. The CBK’s easing cycle has been enabled by inflation consistently undershooting forecasts. Annual inflation eased to 4.5% in November, comfortably within the official 2.5–7.5% target band. In its policy statement, the Bank projected inflation will “remain below the midpoint of the target range in the near term,” citing lower food prices, stable energy costs, and a steady exchange rate as key factors keeping prices in check. Notably, after years of depreciation, the Kenyan shilling stabilized in the second half of 2025 – helped by tighter monetary conditions and administrative measures to manage dollar demand. The CBK highlighted that the latest cut “will augment previous policy actions… supporting economic activity while ensuring inflation expectations remain firmly anchored and the exchange rate remains stable”. Kenya’s economy has been growing at a solid ~5% clip, and the central bank sees room to stimulate credit to businesses and households now that inflation is subdued. However, officials remain vigilant given external risks like a potential regional drought (which could push up food prices) and global market volatility. For now, Kenya’s example shows how early and sustained disinflation – achieved via prudent policy and a bit of luck on commodity prices – can create a virtuous cycle: stable prices enabling lower rates, which in turn may further support growth and fiscal stability.
Drivers of the Continent’s Disinflation
Broadly, African inflation has retreated significantly in the past year, easing from the double- or triple-digit peaks seen in 2022. Several common factors are at play. First, food and fuel costs have come down or stabilized across many African economies, after the supply shocks of the pandemic and Ukraine war subsided. Good harvests and lower global oil prices in 2025 helped cool the two components that weigh heaviest in African consumer baskets. Exchange rates have also steadied – or even strengthened – in many countries, reducing imported inflation. Currencies that were in freefall a year ago (such as the Ghanaian cedi and Egyptian pound) found firmer footing in 2025, thanks in part to improved trade balances and external support programs. For instance, Ghana’s cedi appreciated by about 4% against the dollar in late 2025, and the South African rand rallied on positive investor sentiment. In Kenya, “continued exchange rate stability” was explicitly cited as a reason inflation stayed low. Policymakers also credit the lagged impact of very tight monetary policy in 2023–2024. Central banks raised interest rates aggressively in those years, which eventually dampened consumer demand and credit growth, helping to slow price increases. Fiscal belts were tightened under IMF programs in countries like Ghana and Zambia, curbing deficits and money-printing. Meanwhile, external accounts have improved: a mix of higher commodity export revenues (for oil and gold producers), restrained imports, and debt relief efforts narrowed current account gaps and bolstered foreign reserve levels. Stronger reserve buffers – Nigeria’s reserves climbed to the highest in years, and Ghana built reserves under its IMF program – have given central banks more firepower to defend their currencies. “Markets that rebuilt reserves and stabilised currencies…gained room to manoeuvre” on monetary policy, observes one industry analysis. In short, the convergence of lower global inflation and stricter domestic policies has produced a welcome disinflation across Africa, setting the stage for the current wave of rate cuts.
That said, risks remain. Analysts warn that base effects – the statistical low comparisons that made 2025 inflation prints look so favorable – will fade in 2026. Further durable disinflation will depend on fundamental factors such as continued food supply improvements, prudent fiscal management, and minimal exchange-rate pass-through from any currency wobbles. If drought hits agricultural output or if oil prices spike anew, inflation could tick back up, potentially pausing the easing cycle. Moreover, the global interest rate environment is a wild card. African central banks are enjoying a dovish turn partly because the U.S. Federal Reserve and other major central banks have signaled an end to their rate hikes, relieving pressure on emerging market currencies. Any reversal – say, if the Fed were forced to tighten again – could weaken African currencies and reignite imported inflation, limiting the scope for local rate cuts. Similarly, a sharp downturn in global risk appetite would test the resilience of those currencies that have recently firmed. In this context, central bankers from Abuja to Pretoria are stressing that their job is not done; vigilance is needed to ensure today’s hard-won price stability is not compromised by premature or overdone easing.
Market Implications: Bonds and Borrowing on the Upswing
For investors, the policy pivot in Africa carries significant implications. Local-currency bonds stand out as potential beneficiaries. As inflation falls and interest rates trend down, domestic bond yields are declining from their previously high levels, boosting bond prices. Fixed-income investors are finding real yields in many African markets turning positive again – a stark change from the negative real returns during the inflation spike. In Ghana and Egypt, for example, benchmark bond yields have been coming down alongside policy rates, offering scope for price gains (and portfolio mark-to-market wins) as easing continues. In South Africa, government borrowing costs have already fallen amid the improved inflation outlook, and further modest rate cuts in 2026 would reinforce that trend. Lower yields and stronger currencies are also reviving interest in African local debt from foreign investors, after many fled during the turbulence of 2022–2023. With several African currencies stabilizing or appreciating this year, the FX risk on local bonds has diminished, making the high nominal yields more attractive on a hedged or unhedged basis.
Domestic credit conditions should gradually improve as well. Banks, which had tightened lending standards during the high-inflation period, may begin expanding credit more freely at lower interest rates. Easier monetary policy is expected to reduce loan defaults and spur consumer spending and investment, albeit with a lag. Corporate borrowers could see financing costs ease, especially in countries like Kenya where policy rates are back in single digits. Sovereign issuers, too, may face lower interest expenses on new local debt issuance, helping fiscal consolidation efforts. All of this paints a cautiously optimistic picture for African markets: a sustained respite from inflation could translate into a virtuous cycle of falling interest rates, stronger growth, and improving debt dynamics.
Investors are nonetheless advised to stay vigilant. The same global factors that could constrain central banks – such as a shift in U.S. or European monetary policy – would also affect capital flows to African bond markets. A sudden strengthening of the US dollar or rise in global yields could temper the rally in African currencies and local bonds. Furthermore, liquidity in many African markets remains relatively shallow, meaning price volatility can return quickly if conditions change. Still, for the first time in several years, the overall backdrop is turning positive for African fixed-income assets and currencies. Portfolio managers positioning for 2026 are looking at a very different landscape: one where the question is how much rates will fall, not how much higher they’ll go.
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