Monetary tightening in Africa would not only fail to rein in inflation; it would raise the cost of productive investment, suppress growth, and hamper the continent’s much-needed structural transformation. A better strategy would focus on accelerating this transformation by channeling finance into productive industries.
CAMBRIDGE—African economies began this year facing no shortage of challenges, including lower global demand for their goods and services, unpredictable tariffs and other trade barriers, post-pandemic debt overhangs, structural unemployment, and large net financial outflows. Then the United States and Israel launched their war on Iran, throwing the Middle East into turmoil, halting traffic through the Strait of Hormuz, and compounding inflationary pressures. Now, inflation has reached double-digit rates in some African countries. But the traditional monetary-policy prescription—higher interest rates—will not work to contain it, and might even make matters worse.
CAMBRIDGE—African economies began this year facing no shortage of challenges, including lower global demand for their goods and services, unpredictable tariffs and other trade barriers, post-pandemic debt overhangs, structural unemployment, and large net financial outflows. Then the United States and Israel launched their war on Iran, throwing the Middle East into turmoil, halting traffic through the Strait of Hormuz, and compounding inflationary pressures. Now, inflation has reached double-digit rates in some African countries. But the traditional monetary-policy prescription—higher interest rates—will not work to contain it, and might even make matters worse.