Trump’s victory is prompting African central banks to lower their interest rates over the next three weeks. A Trump presidency is expected to further strengthen the dollar, primarily due to his commitment to significantly increase tariffs on imported goods. A new wave of inflation, fueled by the dollar’s strength under Trump, exacerbates already high inflation rates in many African countries.

Trump’s presidency expected to further strengthen the dollar

Donald Trump’s return to the White House has driven the dollar higher against G10 currencies and those of emerging markets, a shift with potentially significant macroeconomic repercussions for African nations.

As Trump’s victory became clear, the « Trump Trade » pushed Treasury yields up by 0.16 %, reaching 4.44 %. Simultaneously, the dollar index, which measures the dollar’s performance against a basket of major currencies, experienced its largest single-day gain since November 2022. The dollar appreciated by up to 1.5 % when results were announced in the early hours of November 6.

Trump’s presidency is expected to further bolster the dollar, largely due to his proposed substantial increases in tariffs on imported goods. During his campaign, Trump suggested raising tariffs by an additional 10 % on most foreign products, with goods from China potentially facing tariffs of up to 60 % or more.

African Central Banks to lower interest rates

Most African central banks are considering lowering their interest rates within the next three weeks. Among the 14 monetary authorities set to announce their policy rates, eight, including South Africa and Kenya, are expected to cut rates. Five are likely to maintain current rates, while Nigeria is projected to increase them.

While national factors ultimately influence their decisions, it will be hard to ignore Trump’s November 5 election victory, which has disrupted emerging markets. Investors speculate that his policies could result in a stronger dollar and higher U.S. interest rates.

A stronger dollar would negatively impact African nations by increasing the cost of imports and making dollar-denominated debts more expensive. Additionally, rising U.S. interest rates could trigger capital outflows from emerging markets, forcing local monetary authorities to raise borrowing costs to stabilize their currencies.

Financial struggles of heavily indebted African countries

Trump’s threat to impose additional tariffs on imported goods in the U.S. is a clear concern for some heavily indebted African countries, as it complicates their access to global financial markets.

Several African economies, including Zambia, Ethiopia, Ghana, and Kenya, are currently unable to raise capital in international markets due to their high debt burdens.

Countries under the spotlight include Kenya and Angola. Angola recently warned of its struggles to service its debt while funding daily public expenditures. Meanwhile, the Kenyan government has faced citizen backlash over a « predatory » tax measure recently introduced. In June, mass protests forced the government to reverse the Kenyan tax bill. The government has since resorted to borrowing to meet its obligations.

Inflation challenges in Africa

In its latest outlook for sub-Saharan Africa, the IMF stated that « in much of the region, the fight to stabilize prices is not yet over, public finances remain fragile, and foreign exchange reserves are often insufficient ».

Several African countries remain concerned about an imminent rise in inflation. In their upcoming reviews, Angola, the Democratic Republic of Congo, Egypt, and Ghana are all expected to keep interest rates unchanged due to fears of double-digit inflation and the risks associated with a stronger dollar.

• Botswana, which boasts one of Africa’s lowest inflation rates (1.6 %), is expected to maintain stable borrowing costs.
• In Nigeria, policymakers are likely to raise interest rates on November 26 to combat soaring inflation driven by higher fuel prices, currency depreciation, and recent flooding.
• In South Africa, data expected this week is likely to show that annual inflation dropped in October, settling within the lower end of the target range of 3 % to 6 %.
• Central bankers in Eswatini, Lesotho, and Namibia, whose currencies are pegged to the rand and have seen slowing inflation, are expected to cautiously lower rates by a quarter-point.
• Countries like Kenya, The Gambia, Rwanda, and Mozambique, where inflation is declining, are expected to cut interest rates.