Iran war energy shock puts Africa’s rate-cut cycle on ice — somewhat

The Iran war’s energy shock is putting Africa’s rate-cut cycle on ice, but Nigeria just broke ranks. The Central Bank of Nigeria cut its benchmark rate by 350 bps to 23% yesterday, the biggest cut in its history, when analysts had expected a third straight hold at 26.5%. Morocco’s Bank Al-Maghrib held at 2.25%, as expected. The two were the first of 11 African central banks due to decide over two weeks. Going in, a Bloomberg roundup of economists’ forecasts had seven holding, three hiking, and only Zambia cutting. Surging energy costs, food price risks, and tighter US monetary policy are making it harder to ease, even where inflation has started to retreat.

Nigeria’s cut comes on the back of slowing inflation. Headline inflation dipped to 15.39% in August from 15.43% in July, its third straight monthly decline. That still leaves the benchmark rate well above inflation, even after the cut.

Egypt is expected to stay put. EY Africa Chief Economist Angelika Goliger sees the Central Bank of Egypt (CBE) holding its overnight deposit rate at 19% through the rest of 2026, with cuts more likely next year, given still-high inflation and the country’s exposure to regional and energy shocks.

But the consensus is showing cracks: A majority of analysts surveyed by EnterpriseAM expect the CBE to hold rates at Thursday’s meeting, but HC Securities’ Heba Monir thinks a 100-bp hike is in order given anticipated 4Q inflation pressures. August urban inflation unexpectedly eased to 14.5%, supported by falling food prices, even as core inflation edged up to 14.9%. The CBE has held for four consecutive meetings since February’s 100-bp cut.

Morocco’s hold looks set to last. Inflation averaged just 0.3% over the first eight months of the year. Oxford Economics’ François Conradie expects Bank Al-Maghrib to keep its rate at 2.25% for its next three meetings as fuel price increases feed through and the disinflationary benefit of a good harvest fades.

Elsewhere, the policy divide is widening: Ghana, Mozambique, Kenya, and Tanzania are expected to stand pat. South Africa and its ZAR-pegged neighbors Eswatini and Lesotho may each raise rates by 25 bps, which would take South Africa’s benchmark to 7.25%. Zambia is still expected to cut, with easing inflation creating room.

The oil price math is getting harder to ignore: Brent broke through USD 100 a barrel earlier this month, compared with an average of around USD 85 when most African central banks last met, Bloomberg reports. The conflict has restricted oil, diesel, and fertilizer supplies, while a potentially severe El Niño threatens harvests. Food accounts for as much as half of consumer price baskets in some African economies, leaving policymakers exposed to both energy and agricultural shocks.

And the Federal Reserve is adding another layer of pressure: September’s US rate increase — its first since 2023 — raises the risk of capital outflows, currency weakness, and imported inflation for African economies. That gives central banks an incentive to maintain sizable spreads between policy rates and inflation rather than cutting at every available opening. “Instead high nominal rates have become a buffer,” Equity Group Holdings Chief Economic Adviser Charlie Robertson told the business news service.

BACKGROUND- Governments are absorbing some of the shock themselves: The number of countries introducing fuel subsidies more than doubled in the four months to the start of September, from 16 to 38, while 94 governments now offer some form of consumer energy support, up from 56, according to a Financial Times analysis of International Energy Agency data. That’s helping keep a lid on inflation in places like Morocco, where transport subsidies and frozen butane and electricity prices have cushioned the oil spike, albeit at a growing cost to public finances as borrowing costs rise.

MARKETS THIS MORNING-

Asian markets gained earlier today, with Japan’s Nikkei rising 1.4% and South Korea’s Kospi gaining around 1%. Wall Street was mixed upon closing, with Nasdaq notching a record high boosted by AI-related stocks.

THE CLOSING BELL-

The EGX30 fell 0.1% at yesterday’s close on turnover of EGP 9.7 bn (17.3% below the 90-day average). Local investors were the sole net buyers. The index is up 31.3% YTD.

In the green: Telecom Egypt (+2.4%), Heliopolis Housing (+2.1%), and Palm Hills Developments (+1.8%).

In the red: AMOC (-1.8%), Beltone Holding (-1.7%), and EFG Holding (-1.3%).