Global central banks to announce policy decisions against backdrop of geopolitical tensions
Baku, July 28, AZERTAC
World’s central banks will make their monetary policy decisions this week amid ongoing geopolitical tensions in the Middle East affecting the global inflation and growth outlook, according to Anadolu Agency.
Global central banks are expected to signal their future policy roadmaps against the backdrop of growing concerns over US-Iran tensions and whether the developments will fuel inflationary pressures through rising energy prices, alongside uncertainty over whether Washington’s tariffs could drive up prices.
Brent crude oil rose above $100 a barrel again last week amid renewed tensions in the Middle East and rising risks to the global inflation outlook, narrowing the policy space for central banks.
Rising energy costs could make the fight against inflation more difficult, while central bank leaders are expected to maintain their focus on price stability this week.
The inflation outlook, the impact of rising energy prices on monetary policy, and signals on the interest rate path will shape global asset prices.
The US Federal Reserve, the Bank of Japan (BoJ), and the Bank of England (BoE) will announce their monetary policy decisions this week. All eyes are on the meeting minutes and remarks by central bank leaders to be released alongside each bank’s decision, as the outcome will shape interest rate expectations for the rest of the year.
The Fed’s decision on Wednesday is the top item on the global market agenda.
The Fed is 66% likely to keep its policy rate unchanged on Wednesday, while expectations that it may deliver at least one rate hike by the end of the year remain strong, driven by rising oil prices, according to money market estimates.
Fed Chair Kevin Warsh’s remarks following the decision will shed some light on the bank’s future policy roadmap, as investors will look for clues about the bank’s potential actions in September, October, and December.
Warsh has emphasized price stability several times during his news conferences and has previously refrained from providing forward guidance.
Developments in the US will influence monetary policy in Europe.
The European Central Bank (ECB) maintained its three key policy rates last week, in line with estimates. ECB President Christine Lagarde said the full impact of the energy shock stemming from the Middle East had yet to be fully reflected in inflation.
Lagarde said the bank is not committed to a specific rate path and will continue to monitor broader macroeconomic developments.
All eyes are on the BoE’s decision on Thursday following the ECB meeting.
The BoE is expected to keep its policy rate unchanged at its upcoming meeting, but it may raise rates by the end of the year.
British Prime Minister Andy Burnham, who recently took office, aims to grow the UK economy through a new model that strengthens the role of the state by decentralizing economic decision-making authority to the regions, reindustrializing the country, and implementing or amending public policies to support domestic production.
Meanwhile, Asian economies are feeling the indirect effects of developments in the Middle East, while persistent inflationary pressures in Japan are keeping expectations for the country’s interest rate path on the hawkish side.
Japan’s annual inflation rose to 1.7% in June, its highest level in six months, while accelerating core inflation showed energy costs continue to spill over into the broader economy.
The BoJ raised its policy rate to 1% in June, in line with estimates, reaching a 31-year high. The bank is expected to remain cautious on Friday, while markets expect one more rate hike by the end of the year.
The depreciation of the Japanese yen, with the US dollar trading near 40-year highs against the currency, is complicating the decision-making process for Japanese policymakers.
The US dollar/Japanese yen exchange rate traded near 40-year highs last week, reaching 164. Japan is expected to intervene because of the exchange rate’s current trajectory.
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