“When interest rates go up, people feel it not in the bank, but in their kitchen.” Says Nafisah Bello, Development Economist, Dakar.
In Lagos, the rising cost of staple foods like beans and Agege bread has forced many families to change their diet. In Harare, small businesses fold under the weight of loan repayments. In Accra, young men crowd forex kiosks, trying to exchange cedis for dollars before prices jump again. This is the unseen face of Africa’s interest rate surge.
As of early 2025, Africa is fighting a quiet war against inflation, collapsing currencies, and economic fragility. The weapons? Interest rates. And they’ve never been this sharp.
Zimbabwe, long a poster child for hyperinflation, now leads the continent with a benchmark interest rate of 35 percent. Ghana follows closely at 28 percent, while Nigeria, Africa’s fourth largest economy, sits at a record 27.50 percent, for the third consecutive time.
But what does all this mean for everyday Africans?
Why are rates rising?
At the heart of the issue is inflation. Across Africa, prices are rising faster than wages. Basic goods, fuel, bread, medicine are now luxuries for millions.
A major cause is currency devaluation. In Nigeria, the naira has lost over 65 percent of its value in the past 12 months. Ghana’s cedi has also depreciated, dropping by about 19 percent against the U.S. dollar over the past year, though it has recently rebounded, appreciating by 24.1 percent in the first five months of 2025, according to the Bank of Ghana. Bloomberg named the cedi the world’s best-performing currency in April 2025.
Why does this matter? This matters because most African countries import key goods, fuel, medicine, food, and pay for them in dollars. So when the local currency weakens, import costs skyrocket. And when prices go up, central banks raise interest rates to slow down spending and borrowing.
“Imagine your money shrinking while your expenses grow that’s what inflation does,” says Nafisah. “Raising rates is painful, but it’s the only tool we have left.”
Governments in tight corners
Monetary policy isn’t the only challenge, fiscal pressures are intensifying the strain. Since Nigeria removed its fuel subsidy in May 2023, petrol prices have surged over fivefold, driving up transport and food costs and deepening the cost-of-living crisis.
In response, the federal government is seeking $21.5 billion in external loans for its 2025–2026 plans, sourced from partners like the World Bank and AfDB. The Finance Ministry describes it as a Rolling Borrowing Plan, disbursed gradually and tied to targeted infrastructure projects.
President Tinubu frames the borrowing as part of a broader reform agenda to restore growth and investor confidence following subsidy removal and currency devaluation. But critics remain wary. “We are in an era of sky-high FG revenues… So what are we borrowing for?” asks Seun Onigbinde, co-founder of BudgIT.
Elsewhere on the continent, Ghana faces similar pressures. Despite an IMF-supported fiscal program and tight monetary policy, inflation stood at 21.2 percent in March 2025, far above the central bank’s 11.9 percent target.
Together, these fiscal and monetary headwinds are leaving African policymakers with difficult decisions: tighten further, or risk losing control.
The elephant in the room
One of the biggest headwinds facing African economies is debt. According to the IMF and World Bank, average public debt across sub-Saharan Africa is around 60% of GDP, with at least 20 countries either at high risk of or already in debt distress.
This means every naira, cedi, or kwacha raised through taxes or exports increasingly goes toward servicing debt leaving less for schools, roads, and hospitals. And rising interest rates make that burden worse.
“When rates go up globally, African countries pay more on their dollar loans,” explains economist Samuel Ochieng, an economist in Kenya Institute for Public Policy Research. “It’s a vicious cycle.”
Are the high rates working?
To some extent, yes. In Nigeria, inflation slowed marginally from 24.23 percent in March to 23.71 percent in April 2025, a sign that monetary tightening may be kicking in. Ghana has also seen a gradual cooling of price pressures. But these gains are fragile.
High interest rates choke business growth. They make loans expensive for entrepreneurs and increase borrowing costs for governments. For ordinary citizens, they squeeze access to credit meaning fewer mortgages, car loans, or small business expansions.
The World Bank warns that prolonged high rates could deepen poverty, especially in fragile states. Already, unemployment is rising, and food insecurity is growing. In Ethiopia, for instance, bread prices have doubled in the last eight months, even as wage growth remains stagnant.
A professor of economics recently argued on LinkedIn that Nigeria’s inflation is not driven by excess demand but by supply-side constraints such as insecurity, high logistics costs, and structural inefficiencies. “The CBN should look beyond just raising or holding rates,” he advised. “Reducing rates could help boost economic activity, especially in sectors starved of credit.”
The bigger picture
Africa’s inflation crisis is influenced by global financial conditions. The U.S. Federal Reserve has maintained its policy interest rate at 4.25 percent–4.50 percent as of May 2025, aiming to bring inflation closer to its 2 percent target.
This higher interest rate environment has led investors to seek safer U.S. assets, resulting in capital outflows from emerging markets, including those in Africa.
As investors move funds to the U.S., African currencies face depreciation pressures. For instance, the South African rand weakened slightly, trading at 17.9225 to the dollar in May 2025. Such currency weaknesses make imports more expensive, exacerbating inflationary pressures.
Compounding these challenges are geopolitical tensions, supply chain disruptions, and oil price volatility, which further constrain the policy options available to African central banks. These factors limit the effectiveness of monetary policy in controlling inflation without hindering economic growth.
Looking ahead, there is hope that global conditions will ease. If the U.S. dollar weakens and commodity prices stabilize, African currencies may recover, allowing central banks to lower interest rates gradually.
However, until such improvements materialize, policymakers must carefully balance tightening measures to control inflation against the risk of stifling economic growth.
Survival at a cost
From central bank boardrooms to roadside kiosks in Ibadan, the cost of stabilizing Africa’s economies is being felt in real time. It’s not just about numbers, it’s about struggles.
Every interest rate hike shows up in the clatter of empty cooking pots, the silence of shuttered shops, and the growing pile of unpaid bills on household tables.
“People think inflation is abstract,” says Nafisah. “But in Africa, it’s deeply personal.” Until the tide turns, Africa will keep walking the tightrope, fighting inflation one rate hike at a time.
If the cure keeps biting harder than the disease, will Africa find a better way to heal? (BusinessDay)
