Mon, Mar 16, 2026 page9

• Trump’s war jolts global central banks

  DAMAGE REPORT: Global central banks are assessing war-driven inflation risks as the law of unintended consequences careens around the world, spiking oil prices

  • Bloomberg
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  Central banks from Washington to London and from Jakarta to Taipei are about to make their first assessments of economic damage after more than two weeks of conflict between the US and Iran.

  Decisions this week encompassing every member of the G7 and eight of the world’s 10 most-traded currency jurisdictions are likely to confirm to investors that the specter of a new inflation shock is already worrying enough to prompt heightened caution.

  The US Federal Reserve is widely expected to do exactly what everyone anticipated weeks ahead of its March 17-18 policy gathering: hold rates steady.

  

  The US Federal Reserve Board building in Washington is pictured on Sept. 17 last year.

  Photo: Reuters

  The narrative surrounding that hold — that it might comfortably endure for months — has been smashed by renewed tremors in the labor market and a war in the Middle East that has sent oil prices surging. The combination puts the Fed’s dual mandates in conflict, clouding the outlook for rates, at least for the near-term.

  Officials at the European Central Bank (ECB) are also anticipated to keep the deposit rate unchanged on Thursday. However, the Middle East crisis has all but dislodged the central bank’s policy from the “good place” that ECB President Christine Lagarde and colleagues claimed to inhabit.

  The spike in energy prices, which has spurred bets on rate hikes, puts the onus on the Governing Council to explain how inflation risks have shifted, along with clues on how close they are to meeting those market expectations.

  The Bank of Japan (BOJ) is expected to hold its benchmark rate steady on Thursday too, while assuring markets that it remains on the path toward policy normalization. BOJ Governor Kazuo Ueda is likely to emphasize the need to closely monitor developments given the country’s heavy reliance on oil imports from the Middle East. Traders would parse the BOJ’s statement and Ueda’s remarks for clues.

  In London, a decision that appeared just last month to be tilted “50-50” toward a cut, Bank of England (BOE) Governor Andrew Bailey said, is highly likely to favor unchanged rates on Thursday as inflation risks are forcing BOE officials to pivot toward vigilance about consumer prices, despite signs of sputtering growth even before the energy shock.

  For the Swiss National Bank, the central bank’s resolve to cap gains that pushed the franc to decade highs against the euro would draw close scrutiny at its first quarterly decision of the year on Thursday, after policymakers broke their usual silence to reveal increased willingness for intervention.

  While any change in language on foreign exchange would be notable, economists are unanimous in saying the rate would stay at zero, meaning that they judge present circumstances do not warrant the more drastic and economically harmful option of a return to negative borrowing costs.

  Reserve Bank of Australia (RBA) policymakers on Tuesday are due to set the cash rate, currently 3.85 percent, with markets pricing a solid chance of a second consecutive increase.

  The RBA last month became the first major developed-market central bank this year to lift borrowing costs, citing stubborn price pressures and excess demand in a supply-constrained economy. Since then, data have reinforced the picture of resilience, while the Iran war has heightened concerns about domestic price pressures.

  The central bank in Jakarta is expected to keep its rate steady at 4.75 percent on Tuesday, a decision that would force Bank Indonesia officials to balance rupiah stability against renewed worries about consumer prices.

  While fuel subsidies would probably cushion faster inflation, such measures risk bloating the deficit amid heightened fiscal concerns. That could spur more capital outflows and undermine officials’ efforts to maintain a stable currency.

  As for Taiwan, the country’s economy has been buoyed by strong global demand for its technology products that support artificial intelligence development. However, its central bank is unlikely to raise rates on Thursday after recent inflation stayed well below 2 percent. Instead, the central bank is expected to revise up its GDP and inflation forecasts, DBS Bank Ltd said.

  While it remains premature to expect rate hikes this year, the growth-inflation dynamics indicate that the next policy move could be a rate hike rather than a rate cut, DBS added.

  Additional reporting by staff writer
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