Major central banks pointed to uncertainty linked to the war in the Middle East as they largely kept interest rates steady in March, with concerns over higher inflation and weaker growth clouding the global economic outlook.
Policymakers across both developed and emerging markets struck a cautious tone, with most opting to hold rates or move only gradually as volatile oil prices and geopolitical risks complicated the path for monetary easing.
The cautious stance was mostly expected, with JPMorgan saying mid-month that “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.”
In developed markets, central banks overwhelmingly stood pat. Of nine 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 the year-to-date balance at a modest 50 basis points of tightening through two hikes by Australia.
Emerging markets showed slightly more variation but remained broadly cautious. Of 15 meetings in March, 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 at its latest meeting and prompting the government’s withdrawal from the board.
Even where easing cycles are underway, policymakers signaled restraint. Several central banks, including those in Indonesia, South Africa, the Philippines, Hungary and the Czech Republic, explicitly cited heightened uncertainty tied to the Middle East conflict and its potential impact on inflation as a reason to delay or limit rate cuts.
That caution reflects a shifting global backdrop in which central banks are balancing slowing growth against renewed upside risks to prices, particularly through energy markets.
So far this year, emerging market central banks have delivered a net 175 basis points of easing, driven by 10 rate cuts totaling 375 basis points, offset by two hikes in Colombia worth 200 basis points. The mixed picture underscores the uneven pace of disinflation and the constraints policymakers face in easing policy independently of global conditions.
(Reporting by Rodrigo Campos and Sumanta Sen)
