Monetary Policy Transmission in Sub-Saharan Africa: Evidence from Emerging and Frontier Markets

IMF Working Papers, May 22, 2026

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This paper empirically reassesses monetary policy transmission in emerging and frontier market economies in Sub-Saharan Africa (SSA EFMs).
Using the identification approach of Romer and Romer (2004), the authors construct measures of monetary policy shocks and provide evidence on transmission mechanisms in the region.
The analysis shows that monetary policy shocks:
- pass through quickly to short-term market interest rates;
- lead to persistent increases in bank deposit and lending rates in most economies, indicating an operative bank-based interest rate channel;
- generally do not lead to exchange rate appreciation and, in many cases, lead to exchange rate depreciation following monetary tightening (consistent with the exchange rate puzzle).
Contractionary monetary policy reduces both output and inflation, with effects that are modest and notably weaker than in more developed economies.
Transmission is stronger in economies that have adopted, or are transitioning toward, inflation-targeting regimes.
Cross-country heterogeneity in transmission largely reflects differences in:
- monetary policy transparency;
- financial development;
- and, to a lesser extent, fiscal dominance.

Rapid pass-through of monetary policy shocks to short-term market interest rates.
Persistent increases in bank deposit and lending rates in most economies — evidence of an operative bank-based interest rate channel.
Exchange rates generally do not appreciate and often depreciate after monetary tightening — consistent with the exchange rate puzzle; implying interest rate hikes alone may be insufficient to systematically influence exchange rate movements.
Contractionary monetary policy effects:
- reduces output;
- reduces inflation;
- effects are modest and notably weaker than in more developed economies.
Stronger transmission in economies with inflation-targeting regimes or transitioning toward them.

Subject: Central bank policy rate, Exchange rate flexibility, Exchange rate policy, Exchange rates, Financial services, Foreign exchange, Monetary policy, Monetary policy frameworks
Keywords: Africa, Central bank policy rate, Exchange rate flexibility, Exchange rate policy, exchange rate response, Exchange rates, Financial markets, Global, inflation, Monetary policy frameworks, monetary policy shock, Monetary policy transmission, SSA EFMS, Sub-Saharan Africa, transmission in Sub-Saharan Africa