By Alun John
LONDON, March 19 (Reuters) – Nearly all major developed market central banks kept rates unchanged this week, but emphasised their readiness to act to curb inflation should the energy shock caused by the U.S.-Israeli war on Iran drive a broader surge in prices.
Since the war began, traders have slashed bets on monetary easing this year for the Federal Reserve and priced rate increases elsewhere, including by the European Central Bank and Bank of England.
The Reserve Bank of Australia, already in hiking mode, raised rates again this week.
Here’s where the 10 developed market central banks stand, ranked from their highest policy rate to lowest:
1/ AUSTRALIA
The Reserve Bank of Australia raised rates for a second straight month to 4.1% on Tuesday, warning of a “material” risk to inflation from the war.
Core inflation hit a 16-month high of 3.4% in January and is rising. Markets see at least two, probably three, more hikes this year, which would take rates above their late 2023 high.
2/ NORWAY
The Norges Bank meets next week. Sticky inflation meant it was one of the most cautious developed market central banks, cutting rates just twice last year from their late 2023 high of 4.5%.
Markets see the next move as a hike, and one is fully priced by August. <0#NOKIRPR.
3/ BRITAIN
The Bank of England held rates steady at 3.75% on Thursday, but traders saw the post-meeting statement as hawkish, and now see a 25 basis point rate hike by April as a toss up, and at least two, maybe three, by year-end.
The BoE said it was alert to the risk of higher inflation expectations getting embedded in the economy, and while it nodded to the risks of an economic slowdown it said higher inflation was the bigger risk.
4/ UNITED STATES
The Federal Reserve held rates steady on Wednesday in the 3.50%-3.75% range, but chair Jerome Powell’s hawkish tone caused traders to push back rate cut expectations into 2027.
The Fed last cut rates in December. Before the war, markets had priced two 25 bp rate cuts this year – now they see next to no chance of a move.
While the world’s most significant central bank stuck to its prior projections for one cut in 2026, it forecast higher inflation this year than it had previously.
Powell described significant challenges in bringing inflation down, from persistent tariff-driven price hikes to Iran war-driven energy price hikes. He said the Fed may not be able to “look through” the latter as a transitory shock.
5/ NEW ZEALAND
The Reserve Bank of New Zealand meets in early April. It cut rates more aggressively than most peers in 2024 and 2025 to 2.25%. Still, markets think the next move will be a hike, and two are priced by year-end.
