Global Central Banks Raise Rates Amid US-Iran Energy Shock

Global central banks are tightening monetary policy to counter inflation spikes caused by energy shocks from the conflict between the United States and Iran. The Federal Reserve System unanimously raised its benchmark rate to a range of 3.75% to 4% on Wednesday, while the South African Reserve Bank increased its policy rate by 25 basis points to 7.25% to combat rising fuel prices.

The European Central Bank raised its deposit rate to 2.5% on Thursday, marking its second hike in three months. President Christine Lagarde described the move as a "no-brainer" to prevent imported energy shocks from triggering wage-price spirals, noting that Brent crude prices exceeded $100 a barrel due to disruptions in the Strait of Hormuz.

In contrast, the Bank of England voted 6-3 on Thursday to maintain its main interest rate at 3.75%. While the majority cited a lack of material second-round effects on wages and prices, Deputy Governor Clare Lombardelli warned that a rate increase is increasingly likely if high energy prices persist. The bank expects inflation to climb to 3.7% in the fourth quarter of 2026 and 4.2% in the first quarter of 2027, as households face a 4% increase in the energy price cap.