Introduction:

African central banks are currently navigating a complex economic landscape, poised to adopt divergent approaches to interest rates as they assess the impact of US President Donald Trump’s new tariff proposals alongside their domestic economic conditions and inflation. These upcoming monetary policy decisions will largely be shaped by the inherent tension between receding inflation and persistent structural vulnerabilities within their economies. While some nations with easing inflation are set to cut rates, others still battling high inflation are expected to hold steady, reflecting varied domestic dynamics and external risks, including the significant threat of US tariffs on trade flows and currency stability.

Key takeaways from sources:

Divergent Monetary Policy Across Africa Amidst Global Uncertainty: African central banks are facing a complex scenario where they must balance receding inflation with persistent structural vulnerabilities and the external risks posed by global trade shifts, particularly US tariffs. This has led to divergent approaches to interest rates. Some nations, like South Africa, Egypt, Ghana, Eswatini, Democratic Republic of Congo, Kenya, Mozambique, and Lesotho, are expected to cut interest rates due to low or easing inflation and the need for economic stimulus. Others, such as Angola, Nigeria, and Malawi, are poised to hold their rates steady as they continue to battle high inflation or assess domestic economic impacts.
Significant Impact of Trump’s Tariffs, Especially on South Africa and Lesotho:
- The Trump Administration has imposed a 30% tariff on “any and all South African products” effective August 1, citing “unsustainable trade deficits” and South Africa’s perceived misalignment with US national security and foreign policy interests due to its relationships with Iran and China.
- US foreign policy expert Michael Walsh warns this tariff is likely “the first in a series of actions,” potentially escalating to economic sanctions, travel restrictions, visa bans, and counterterrorism investigations against South Africa.
- Trump has also threatened a 10% tariff on imports from BRICS countries due to their “anti-American policies” and efforts to diminish the US dollar’s dominance.
- These tariffs are seen as a “heavy blow” to South Africa’s economy, undermining its international standing due to strategic missteps and political uncertainty, and leaving companies with “no clarity on the path forward”.
- Lesotho’s textile industry has been devastated by Trump’s tariff threats, leading to dried-up US orders and the declaration of a “state of disaster” due to soaring unemployment and mass job losses. This has prompted Lesotho’s Monetary Policy Committee (MPC) to likely reduce its policy rate to boost its economy.
South Africa’s Specific Monetary Policy Adjustments:
- South Africa’s Monetary Policy Committee (MPC) is expected to cut its benchmark interest rate by another 25 basis points to 7%. This decision is supported by the central bank’s current policy stance appearing “overly restrictive” and inflation expectations for two years ahead slipping to 4.5%, their lowest in almost four years.
- The South African Reserve Bank (SARB) is also strongly considering lowering its inflation target from 4.5% to 3%, possibly with a 1% tolerance band, as early as its upcoming policy meeting. This move is supported by tame price pressures and research suggesting “big benefits for public finances”. However, Finance Minister Enoch Godongwana, who has the final say, has cautioned against haste.
- Despite the expected rate cut, EY’s Angelika Goliger warns that the external uncertainty from US tariffs could limit the appetite for aggressive easing in South Africa, which faces a 30% levy on its exports.
Global Market “Desensitization” to Tariff Threats:
- There are growing signs that investors are becoming “desensitised” or “numb” to Donald Trump’s tariff announcements.
- Despite new tariffs on South Africa, copper, and Brazil, the broader impact on global stock markets has been relatively muted. For example, Asia shares rode high, and Bitcoin remained near a record high, with investors choosing to take on more risk.
- This investor sentiment is often encapsulated by the acronym “TACO” (Trump Always Chickens Out), implying a belief that his tariff threats may not fully materialize or will be negotiated down.
- While major trade partners like the EU, Japan, and South Korea have seen hope for deals, smaller exporters such as South Africa have been left with no clarity, indicating this market resilience is not universal.

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Sources referenced:

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