Central banks hold rates as Middle East war clouds inflation and growth outlook

Friday, 3 April 2026 00:08 - - {{hitsCtrl.values.hits}}

Major central banks largely held interest rates steady in March, as uncertainty stemming from the Middle East conflict complicated the global economic outlook and constrained room for policy easing.

Policymakers across both advanced and emerging economies adopted a cautious stance, citing volatile oil prices and geopolitical risks that have raised concerns over inflation while weakening growth prospects.

JPMorgan said the scale of the oil price shock would take time to be fully reflected in policy decisions, according to a Reuters report.

“It will take time for central banks to recognize the magnitude of the (oil price) shock and assess its lasting impact. But forecasts will immediately bias towards higher inflation and lower growth. Initially, we expect uncertainty to promote caution, against a backdrop of policy stances that are close to neutral in most countries,” the bank said.

In developed markets, central banks overwhelmingly remained on hold. Of nine policy meetings in March, eight resulted in unchanged rates, with Australia the only outlier, raising borrowing costs by 25 basis points. No major developed economy cut rates during the month, leaving year-to-date policy shifts at a net tightening of 50 basis points.

Emerging markets showed more variation but retained a broadly cautious bias. Of 15 meetings, 10 central banks held rates, while four delivered modest cuts — Russia by 50 basis points and Brazil, Mexico and Poland by 25 basis points each.

Colombia stood out as the only country to tighten policy aggressively, raising its benchmark rate by 100 basis points, a move that prompted the government’s withdrawal from the central bank board.

Even where easing cycles have begun, policymakers signalled restraint. Central banks in Indonesia, South Africa, Philippines, Hungary and Czech Republic cited heightened uncertainty linked to the Middle East conflict and its inflationary impact as reasons to delay or limit rate cuts.

So far this year, emerging market central banks have delivered a net 175 basis points of easing, driven by 10 rate cuts totalling 375 basis points, offset by two hikes in Colombia amounting to 200 basis points.

The mixed policy response underscores the uneven pace of disinflation globally and the constraints facing central banks as they balance domestic conditions against external shocks.