Central banks around the world – from Washington to London to Jakarta – are expected to conduct their first assessments of the economic damage after more than two weeks of conflict between the United States and Iran.
The decisions expected next week – which include all members of the G7 and eight regions with the world's top ten most traded currencies – are likely to confirm to investors that the specter of a new inflation shock is worrying enough to prompt monetary policymakers to exercise greater caution.
Bets on a US interest rate cut, which markets had fully anticipated, have diminished, while markets are now pricing in a potential rate hike in the UK and the Eurozone later this year. These shifts will force policymakers to clarify the rationale behind these expectations.
Bloomberg Economics experts' opinion:
“For the Federal Reserve, much depends on how the conflict develops. If the war ends quickly, we expect unemployment to rise slightly and core inflation to slow, allowing for a cut in interest rates of about 100 basis points this year. If the conflict drags on, with energy prices remaining high and inflation expectations rising, the calculations become much more difficult.”
Eliza Wenger and Anna Wong, economists.
Iran’s war marks the second time in just over a year that US President Donald Trump’s policies have thrown global central banks into disarray, following the tariffs he introduced on Liberation Day in April that sought to reshape global trade. This uncertainty and these risks are likely to put monetary policymakers on edge in the coming months.
Here's a closer look at the monetary policy decisions expected next week:
US Federal Reserve
It is widely expected that the Federal Reserve will do what was anticipated weeks before its monetary policy meeting on March 17-18: keep interest rates unchanged.
But in recent days, expectations that this measure would continue for months have been hit by renewed turmoil in the labor market and the war in the Middle East, which has driven up oil prices.
This combination puts the Fed’s dual mission in conflict, casting a cloud over the outlook for interest rates, at least in the near term.
Market forecasts : Financial markets indicate a 90% probability of a quarter-point interest rate cut in 2026, most likely starting next September.
On Wednesday morning, while Federal Reserve officials are still meeting, the government will release another piece of the U.S. inflation puzzle with the February Producer Price Index. Economists expect a smaller increase in wholesale costs compared to January, when service prices surged.
Other economic data expected next week includes industrial production for February and new home sales for January.
European Central Bank
It is widely expected that officials in Frankfurt will leave the deposit rate unchanged on Thursday. But the Middle East crisis has largely undermined the favorable position that ECB President Christine Lagarde and her colleagues had claimed monetary policy was in.
The rise in energy prices – which has prompted bets on an interest rate hike – puts the Governing Council in a position where it must explain how inflation risks have changed, as well as provide clues as to how close they are to meeting market expectations.
Investors have focused on the similarities between the current energy shock and the 2022 crisis following Russia's invasion of Ukraine, when the European Central Bank (ECB) demonstrated remarkable resistance to market pressure to raise interest rates. However, while the ECB will try to avoid repeating past mistakes, it is also unlikely to rush into raising rates.
Market expectations : After recent forecasts pointed to keeping interest rates unchanged for a year, traders are now betting that the European Central Bank will raise interest rates at least once in 2026. A quarter-point increase starting in July has been priced in, while swap contracts indicate a 70% probability of a second increase by the end of the year.
Bank of Japan
The Bank of Japan is widely expected to leave its benchmark interest rate unchanged on Thursday, reassuring markets that it is still on track to normalize monetary policy.
Governor Kazuo Ueda is likely to stress the need to closely monitor developments given the country's heavy reliance on oil imports from the Middle East.
While persistently high oil prices could harm the Japanese economy, they will also add inflationary pressures. Policymakers must also assess the risk of further yen weakness if they adopt an overly accommodative tone. The currency fell to its lowest level against the dollar since 2024 on Friday.
Market outlook : Traders favor a quarter-point increase by July, and price in a 90% probability of a second increase by December.
Bank of England
The decision – which just last month seemed to be a 50-50 tie between cutting or holding rates, according to Governor Andrew Bailey – now appears highly likely to end with interest rates being kept steady on Thursday.
Economists at ING and RSM UK believe inflation could rise back to more than double the Bank of England's 2% target if the recent surge in oil and gas costs proves to be sustained.
These risks are prompting officials to adopt a more cautious stance on consumer prices, despite signs of slowing growth even before the current energy shock. Data released on Friday showed that the UK economy unexpectedly failed to grow in January, raising concerns that first-quarter GDP growth will fall short of the Bank of England's forecast of 0.3%.
Market expectations : Financial markets see a 60% probability of an interest rate hike in 2026, most likely starting in July. Before the US and Israeli strikes on Iran and the subsequent rise in oil prices, markets were pricing in two quarter-point rate cuts by the end of the year.
Bank of Canada
February's inflation data, due two days before the Bank of Canada's decision on Wednesday, is expected to provide monetary policymakers with important figures on price pressures before the Middle East war pushes oil prices higher.
Monetary policymakers are also taking into account Friday's data showing the economy lost jobs in February at the fastest monthly pace in more than four years.
With headline inflation remaining close to the central bank's 2% target, markets expect policymakers to hold interest rates steady at 2.25% on Wednesday, as investors await Governor Tiff McCollum's press conference to see how the Iran crisis might affect the outlook.
Market expectations : Financial markets anticipate an interest rate hike of a quarter of a percentage point in all of October.
Swiss National Bank
The central bank's determination to curb the rise of the franc – which has reached its highest level against the euro in a decade – will come under intense scrutiny in its first quarterly decision of the year on Thursday, after Swiss monetary policymakers broke their usual silence to reveal a greater willingness to intervene.
Although any change in the bank's language regarding the foreign exchange market would be significant, economists agree on the expectation that interest rates will remain at zero, meaning that the current stage does not warrant the option of returning to the more extreme and economically damaging negative interest rate.
Swiss National Bank officials are focusing on the franc because its strength is putting downward pressure on already weak inflation by lowering import costs. However, higher oil prices could lead to some price increases, easing the pressure on them to act.
Market forecasts : Swap contracts indicate an 85% probability of an interest rate hike in 2026 starting in September.
Swedish central bank
The Swedish central bank is widely expected to keep its benchmark interest rate unchanged at 1.75% on Thursday, in line with previous signals, as the economy continues to recover while inflation falls below the 2% target.
The new economic forecasts—and the updated interest rate path—will be in focus as investors try to determine whether the turmoil in the Middle East has prompted monetary policymakers to revise their view that the next step will be an interest rate hike next year.
Market expectations : Traders see a 50% probability of a quarter-point interest rate hike starting in June.
Reserve Bank of Australia
Australian monetary policymakers are scheduled to set the interest rate on Tuesday, which currently stands at 3.85%, and markets see a strong possibility of a second increase.
Last month, the Reserve Bank of Australia became the first major central bank in advanced economies to raise borrowing costs this year, citing stubborn price pressures and excess demand in a supply-constrained economy.
Since then, data has confirmed economic resilience, while Iran’s war has increased concerns about domestic price pressures.
Officials face the difficult task of assessing whether a further interest rate hike would bolster credibility or risk further tightening monetary policy in an increasingly uncertain global environment. Markets will scrutinize the post-meeting statement, as well as Governor Michelle Bullock's press conference, for clues as to whether February marked the beginning of a new phase of monetary tightening.
Market expectations: Financial markets tend to anticipate three additional interest rate hikes in 2026, starting with Tuesday's meeting.
Brazil
Until the outbreak of war in Iran, the Brazilian central bank was almost certain to begin a monetary easing cycle, with policymakers indicating in January that a March cut was their baseline scenario, while slowing inflation and declining expectations gave them ample room to maneuver.
But instead of a half-point cut as many analysts had predicted, the consensus now favors a cut of only a quarter of a point, and some observers see the possibility that the prudent board will choose to keep interest rates at 15% again.
Bank Indonesia
The central bank in Jakarta is widely expected to keep its benchmark interest rate unchanged at 4.75% on Tuesday, a decision that will force officials to balance the stability of the rupiah with renewed concerns about consumer prices.
While fuel subsidies may mitigate accelerating inflation, such measures could inflate the deficit amid growing fiscal concerns, potentially triggering further capital outflows and undermining officials' efforts to maintain currency stability.
Bank of Russia
Bank of Russia officials will discuss on Friday whether the surge in inflation caused by the VAT increase is easing sufficiently to allow for a seventh consecutive cut in the key interest rate.
Monetary policymakers have cut interest rates by 50 basis points at each of the last three meetings, and their decision will come just before the release of February's consumer price data.
Expected decisions
Tuesday
The King of Morocco is expected to appoint a new central bank governor before the quarterly interest rate decision. The bank is likely to keep rates unchanged while policymakers monitor the impact of the Iran war on inflation.
Wednesday
Iceland’s central bank is expected to raise its interest rate by a quarter of a percentage point to 7.5%, reversing the easing path that began in 2024, as inflation remained at 5.2% with rising oil prices.
After four major cuts since July that reduced Ghana’s benchmark interest rate by 12.5 percentage points to 15.5%, the central bank may slow the pace of easing or pause the cuts temporarily while assessing the impact of the war on inflation.
Thursday
Czech monetary policymakers are also expected to keep borrowing costs unchanged, with developments related to Iran likely to add further arguments for doing so.
The Ukrainian central bank's decision is also expected to keep monetary policy unchanged after its reduction in January.
Taiwan's economy has been supported by strong global demand for AI-related technology products, but the central bank is unlikely to raise interest rates now that inflation has remained below 2% in recent months.
Friday
Paraguay's central bank faces a relatively unusual situation: inflation has slowed for six consecutive months to 2.3%, well below its target of 3.5%. Successive interest rate cuts have reduced borrowing costs to 5.5%.
