Affected by rising energy prices and rising inflationary pressures caused by conflicts in the Middle East, major global central banks such as the Federal Reserve, European Central Bank, Bank of England, Bank of Canada, Swiss National Bank, Riksbank and Bank of Indonesia all chose to remain on hold during the "Super Central Bank Week" from March 17th to 20th, Beijing time.
The Reserve Bank of Australia firmly chose to raise interest rates, raising the cash rate target by 25 basis points to 4.10%.
The "hawkish" decisions of global central banks, especially the Federal Reserve, triggered market reactions, and spot gold fell against the US dollar for many consecutive days. The weekly decline on March 16 reached 10.49%, the largest weekly decline since March 1983. On March 23, spot gold continued to fall, and as of 15:17, it was trading at $4,142.26 per ounce, down nearly 8% on the day, erasing the entire 2026 gain. Since 2026, spot gold has risen as high as nearly 30%.
"The recent rapid rise in oil prices has pushed up inflation expectations, and the market generally believes that the Federal Reserve will postpone interest rate cuts. At the same time, a run occurred in the U.S. private credit market, and liquidity tightened, pushing the U.S. dollar index higher. The U.S. dollar has both a safe-haven function and income, diverting funds that should have flowed to gold. In addition, the funds that were deployed for hedging in the early stage have also begun to realize profits. Under the combined effect of multiple factors, the price of gold is under pressure and downward." Qu Rui, senior deputy director of Oriental Jincheng's Research and Development Department, said in an interview with the media on March 19.
Dan Katz, the first deputy president of the International Monetary Fund, said at the China Development Forum on March 22 that for the current central bank, staying on the sidelines has a high "option value." For central banks that have previously been on hold or are gradually adjusting policy, they are likely to be in a position to respond calmly; and whether they decide to move to a tighter stance to deal with inflation risks or a looser stance to deal with output risks, they are likely to have gained a clearer understanding of the rapidly evolving situation in advance.
It is worth noting that some central banks have bucked the trend and chosen to cut interest rates. The Central Bank of Brazil decided to cut interest rates from 15% to 14.75%; the Central Bank of Russia decided to cut interest rates by 50 basis points to an annual interest rate of 15.00%.
China's loan prime rate (LPR) remained unchanged for 10 consecutive months. The People's Bank of China authorized the National Interbank Funding Center to announce on March 20, 2026: the 1-year LPR is 3.0%, and the 5-year and above LPR is 3.5%. Since June 2025, the LPR of the two maturity varieties has remained unchanged for 10 consecutive months.
In response to the divergence in interest rate decisions of central banks in various economies, Yang Chao, chief strategist of China Galaxy Securities, believes that the out-of-synchrony of the economic cycle and the inflation structure is the starting point for policy divergence. The United States is in a constrained range where growth is still resilient but inflation is slow to fall back. The Eurozone maintains a balance between falling inflation and weak growth. Japan is promoting mild normalization after deflation exit. Emerging markets are diverging due to differences in early tightening intensity and exchange rate pressure. China is focusing on stabilizing growth and focusing more on the use of structural tools.
Yang Chao further said that on this basis, external shocks amplify differentiation through different channels. Rising oil prices act as a supply-side shock, constraining stagflation for economies that are highly dependent on energy and have weak growth; for economies with strong inflationary stickiness, it further intensifies inflationary pressure; for economies that have entered the easing stage, it mainly affects the pace of policy rather than the direction.
Yang Chao reminded that although the interest rate cutting phase has basically ended and the policy has entered a high interest rate platform period, interest rate hikes have not become the dominant direction. Whether we enter an interest rate hike cycle in the future still depends on whether inflation returns to a systematic upward trend, rather than the current baseline scenario.
Most central banks keep interest rates unchanged
On March 19, Beijing time, the Federal Reserve announced that it would keep the federal funds target interest rate unchanged at 3.5%-3.75%, holding steady for the second consecutive meeting.
The Federal Reserve expects core personal consumption expenditures (PCE) to grow at a rate of 2.7% in 2026, an increase of 0.2 percentage points from the December 2025 forecast, and an increase of 0.1 percentage points to 2.2% in 2027. Federal Reserve Chairman Jerome Powell said inflation remains somewhat elevated and measures of short-term inflation expectations have risen in recent weeks, possibly reflecting a sharp rise in oil prices triggered by supply disruptions in the Middle East. But it is too early to judge the scope and duration of its potential impact on the economy. Monetary policy will determine the extent and timing of further adjustments to policy rates based on the latest data, the changing economic outlook and the balance of risks.
The European Central Bank, Bank of Canada, Bank of England, and Bank of Japan also chose to keep interest rates unchanged because of concerns about the impact of inflation.
The European Central Bank decided to keep its three key interest rates unchanged, marking the sixth consecutive time the bank has suspended interest rate cuts since July 2025. European Central Bank President Christine Lagarde said that the conflict in the Middle East has made the economic outlook more uncertain, bringing upward risks to inflation and downward risks to economic growth. The conflict will have a material impact on short-term inflation through higher energy prices, and its medium-term impact will depend on the intensity and duration of the conflict and how energy prices affect consumer prices and the overall economy.
She believes that information to be released in the coming period will help the ECB assess how the conflict will affect the inflation outlook and its associated risks and formulate appropriate monetary policy.
The Bank of Canada decided to keep its benchmark interest rate unchanged at 2.25%. This is the third consecutive time the bank has suspended interest rate cuts since December 2025. Bank of Canada Governor Steve McCallum said Canada faces the challenge of "slowing growth and rising inflation." Recent data point to weaker economic activity and rising uncertainty, with growth risks appearing to be tilted to the downside. At the same time, inflation risks have risen due to rising energy prices.
He said it was too early to assess the impact of the conflict in the Middle East on Canada's economic growth. The Bank of Canada will continue to assess the impact of U.S. tariffs and trade policy uncertainty and how the Canadian economy adjusts. It is also closely monitoring the evolving conflict in the Middle East and assessing its impact on growth and inflation.
The Bank of England decided to keep interest rates unchanged at 3.75% this time. It was the second time it stayed on hold after switching from interest rate cuts to wait-and-see in February 2026. Bank of England Governor Andrew Bailey said conflicts in the Middle East have led to sharp increases in global energy and other commodity prices, which will have a direct impact on households' fuel and utility bills and indirect effects through business costs. Affected by this new economic shock, consumer price index (CPI) inflation will rise in the short term. The Monetary Policy Committee remains alert to the risk of rising domestic inflationary pressures from second-round effects in wages and pricing, which will increase the longer energy prices remain high.
The Bank of England took a hawkish stance, deleting from its statement the statement that interest rates "may be cut further" in its February decision. In addition, Bank of England Governor Bailey said in a statement: "Whatever happens, our responsibility is to ensure that inflation returns to the 2% target level."
The Bank of Japan, which is in the midst of a rate hike cycle, also "maintained the status quo" at its interest rate meeting, keeping the policy interest rate unchanged at 0.75%, marking the second consecutive meeting without action.
The Bank of Japan said that on the one hand, inflation expectations have risen moderately. Due to the impact of factors such as government measures to reduce the burden of rising energy prices on households, the year-on-year increase in the consumer price index (all items except fresh food), which had previously been above 2%, has recently fallen back to around 2%, and the pressure for further interest rate hikes in the short term has eased. On the other hand, rising tensions in the Middle East, turmoil in global financial and capital markets, and a sharp rise in crude oil prices are expected to face upward pressure.
In this "Super Central Bank Week", only the Reserve Bank of Australia firmly chose to raise interest rates, raising the cash rate target by 25 basis points to 4.10%. The bank entered an interest rate hike cycle in February 2026 due to a significant rebound in inflationary pressure.
The Reserve Bank of Australia stated that Australian inflation will pick up significantly in the second half of 2025. In addition, the conflict in the Middle East has led to a sharp increase in fuel prices. If this trend continues, it will further push up inflation. Indicators of short-term inflation expectations have moved upward. Accordingly, the Board of Directors determines that there is a substantial risk that inflation will remain above target for a longer period than previously anticipated.
The Central Bank of Brazil and the Central Bank of Russia "bounced the trend" and chose to lower interest rates from 15% to 14.75%. The Brazilian Central Bank believes that the impact of the Middle East conflict on Brazilian inflation is still unclear. What is certain is that interest rates have remained high for a long time and tight monetary policy has slowed the economy. Without affecting the fundamental goal of price stability, the decision to lower interest rates has played a role in calming economic fluctuations and promoting full employment. Previously, in June 2025, after raising the benchmark interest rate seven times in a row, the Brazilian Central Bank turned to wait-and-see. Until the interest rate meeting in March 2026, the interest rate had been maintained at a high of 15%.
The Central Bank of Russia decided to lower interest rates by 50 basis points to an annual interest rate of 15.00%. The Bank of Russia believes that the economy is approaching a balanced growth path. Although uncertainty in the external environment has increased significantly, the Bank of Russia estimates that price growth slowed as expected in February after temporarily accelerating in January. The current basic indicators of price growth remain within the range of 4%–5% on an annualized basis. In June 2025, the Central Bank of Russia entered an interest rate cutting cycle after interest rates rose to a high of 21%.
Which central banks are expected to raise interest rates?
Yang Chao believes that although the interest rate cutting phase has basically ended and the policy has entered a high interest rate platform period, interest rate hikes have not become the dominant direction. Whether we enter an interest rate hike cycle in the future still depends on whether inflation returns to a systematic upward trend, rather than the current baseline scenario.
Yang Chao explained that the current policy environment does not support a comprehensive shift to tightening. Although inflation has not fully returned to the target, while the momentum of the decline has weakened, growth and employment have slowed down marginally, making it difficult for some central banks to respond to the inflation problem by further raising interest rates.
In addition, Yang Chao went on to say that the nature of inflationary pressure has changed. The recent rise in prices has been more disturbed by supply factors such as energy rather than driven by overheating demand. The adjustment effect of interest rate tools is limited. Therefore, most central banks prefer to observe their transmission to core inflation rather than taking early interest rate increases.
Furthermore, Yang Chao said that policy space constraints have been significantly strengthened. In an environment where high interest rates and high debt coexist, continuing to raise interest rates will put greater pressure on fiscal sustainability and financial system stability, making the central bank more inclined to maintain current interest rates.
Although raising interest rates may not necessarily become mainstream, Hu Jie, a professor at the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University and a former senior economist at the Federal Reserve, believes that without this conflict, the situation would be relatively clear: for a foreseeable long period of time, central banks of various countries will not enter an interest rate raising cycle, but will be in a cycle of digesting the earlier higher interest rates and promoting their gradual return to normal. If the conflict continues, some central banks may choose to raise interest rates.
Some experts also believe that Japan and Australia, which are already in an interest rate hike cycle, may continue to raise interest rates in the future.
Hu Jie said that Japan has been on the verge of deflation for a long time in the past, thanks to the rebound in global inflation. On the one hand, Japan hopes to prevent inflation from rising further to 3% or 4%. On the other hand, it also realizes that its interest rate level is too low, which is not conducive to maintaining a normal financial environment, so it is motivated to raise interest rates slightly.
Liao Bo, chief macroeconomic analyst at Northeast Securities, believes that Australia may become a major economy that chooses to tighten policy. Inflation pressure in Australia has intensified, and service prices, rents, and labor costs have continued to rise, forming a wage-inflation spiral. While some of the pickup in inflation is assessed to reflect temporary factors, private demand is growing faster and labor market sentiment is higher. Australia's Treasury said inflation in Australia was "higher than expected and lasting longer than expected". Data show that as of January 2026, Australia's full-year underlying inflation rate was 3.4%, up from 3.3% in December. The Australian Treasury believes that the rise in inflation in recent months reflects a strong private sector recovery in the second half of 2025.
In addition, Hu Jie also said that British inflation has been at a high level. If the conflict becomes protracted and further pushes up inflation, the Bank of England may also turn to raising interest rates. Data show that British inflation rose to 3.4% in December 2025, the largest increase among the world's major developed economies. British inflation fell to 3% in January 2026, still above the Bank of England's 2% target.
Regarding the Federal Reserve, Liao Bo believes that the Fed’s interest rate cut window has not been closed for the time being. Whether it is fluctuations in the job market or liquidity pressures caused by private placement credit redemptions, it is expected that there will be room for at least one interest rate cut in 2026.
Morgan Stanley’s March 13 research report believes that models and past policy experience indicate that the Fed should largely ignore rising inflation driven by oil prices when deciding whether to adjust interest rates, because rising oil prices tend to push up overall inflation rather than core inflation (i.e., prices excluding energy and food).
Morgan Stanley explained that for rising oil prices to affect core inflation, it needs to trigger a "second-round effect," that is, energy costs must be further transmitted to the labor force (demanding wage increases), product markups (business price increases), or inflation expectations. Morgan Stanley believes this generally does not happen because rising oil prices act like a tax on real income and spending capacity, reducing aggregate demand and limiting companies' pricing power.
Standard Chartered Bank’s research report on March 16 estimated that the market currently expects only one interest rate cut between now and the end of 2026, but there is less than half a chance that this expectation will be realized by the July meeting. Morgan Stanley predicts that the Federal Reserve will cut interest rates by 25 basis points each in 2026 and 2027, bringing the terminal interest rate to 3.0%-3.25%.
The situation facing the European Central Bank is more complex. Morgan Stanley’s research report on March 12 provided three scenario forecasts. If the Strait of Hormuz reopens relatively quickly and oil and gas prices return to pre-conflict levels, the inflationary shock will only be temporary. The ECB will "see through" additional inflation and the path for potential interest rate cuts in 2027 remains; if the Strait of Hormuz is also reopened relatively soon, the futures curve for oil and gas is higher than before February 28, but not to a level that is very harmful to growth, as rising energy costs are affecting core inflation. And it may affect inflation expectations, and the ECB's interest rate hikes will be back on the agenda; if the Strait of Hormuz faces a long-term closure, energy prices may rise to the high levels needed to suppress demand. It is not unrealistic that the gross domestic product (GDP) will be hit by 2 percentage points or more, and the ECB will become looser rather than tighter.
Morgan Stanley believes that the key indicator is the impact of current energy market pressures on medium-term prices and on the stability of euro zone growth. Therefore, Morgan Stanley believes that an interest rate adjustment in April is unlikely, and the next key meeting is June.
