Central bank scanner: Central banks wait on the Strait

Policy is on hold.

April 2026

Central bank policy is one of many factors that affect interest rates. Sovereign debt has risen dramatically in the wake of the pandemic, which is putting upward pressure on bond yields. This has upped the pressure on central banks to bring down inflation.

The war in Iran threatens the progress on inflation and could prompt central banks to hike rates. The duration of the closure of the Strait of Hormuz is key as it is disrupting the supply of oil and supply chains more broadly. The Federal Reserve’s decisions hold sway over other central banks. If the Fed opts to hike, then other central banks may follow suit to protect their currencies and contain inflation. 

The Fed is the only major central bank with a dual mandate of promoting price stability and full employment. Others focus only on inflation, which is among the most regressive taxes. There are very few ways that central banks can deal with inequality; the one way we know is via low and stable prices. History has proven that full employment cannot be sustained without price stability, which occurs when prices are no longer distorting decision making.

European Central Bank (ECB): 

Recent action (March 19): No change in the policy rate in a unanimous decision. Inflation reheated after a cool January, overshooting target due to energy prices. That will draw policy makers’ focus.
Upcoming (April 30): No change in the policy rate is expected. ECB President Christine Lagarde has emphasized no preset bias toward hikes or cuts. However, with conditions sitting between the ECB’s baseline and adverse scenarios, and stickier inflation expectations in Europe than the US, we now expect one to two hikes this year depending upon the length of the war.

Federal Reserve (Fed): 

Recent action (March 18): No change in the policy rate in an 11-1 vote. The lone dissenter, Stephen Miran, voted for a 25-basis point cut. Consumer prices surged in March, driven by energy; gasoline recorded its strongest monthly increase on record. While job growth remained firm, momentum is unlikely to be sustained as war-related uncertainty and cost pressures weigh on hiring plans.
Upcoming (April 29): No change in the policy rate is expected. A narrow path to rate cuts requires the Strait of Hormuz to reopen within weeks and energy flows to normalize within two to three months; under that scenario, rate cuts could resume over the summer. If energy production and trade fail to normalize within four to six months, the forecast will shift to rate hikes later this summer. With inflation running above target for five consecutive years, the Fed’s credibility is increasingly at risk. That further complicates the task facing Chairman Jay Powell’s nominated successor, Kevin Warsh.

Bank of Canada (BOC): 

Recent action (March 18): No change in the policy rate. A weak close to growth in 2025 and soft expectations in 2026 outweighed inflation concerns.
Upcoming (April 29): No change in the policy rate is expected. The BOC is expected to be patient in making its next move. Annual hourly wage increases hit a three-year high while surging energy prices will tempt policy makers to hike. However, slack in the economy will likely prompt a pause through 2026.

Central Bank of Brazil (BCB): 

Recent action (March 17): The BCB cut rates by 25 basis points. That took the Selic below 15% for the first time since June 2025 after resurgent inflation drove hikes.
Upcoming (April 28): No change in the policy rate is expected. With uncertainty over how transitory the energy shock will be, some officials favor a meeting-by-meeting approach. We expect a slower pace of rate cuts throughout the year than previously forecast.

Bank of Japan (BOJ): 

Recent action (March 19): No change in the policy rate in an 8-1 vote. The lone dissent favored a hike to stem second round inflation effects from the energy price spike. Core inflation cooled below target in February, ahead of the closure of the strait; that will reverse course.
Upcoming (April 28): No change in the policy rate is expected. The energy shock has surfaced growth concerns that must now be weighed against inflation. Policy makers do not believe a wage-price spiral is likely, despite strong wage growth. Caution is warranted. Three rate hikes are expected by the end of 2027.

Reserve Bank of India (RBI): 

Recent action (April 7): No change in the policy rate in a unanimous decision. The central bank marked up growth prospects, while inflation remains below the midpoint of the RBI’s inflation target range.
Upcoming (June 5): No change in the policy rate is expected. India is highly exposed to Middle East energy imports and has limited reserves. Absent a material escalation in the war, the RBI is forecast to remain on hold through year-end. In the event of a significant escalation, policy makers would likely opt for a rate increase.

Bank of England (BOE): 

Recent action (March 19): No change in the policy rate in a unanimous vote. Four MPC members noted a preference for a cut, if the Iran war had not started. The inflation outlook changed materially from the previous meeting, when inflation was on a cooling trajectory.
Upcoming (April 30): No change in the policy rate is expected. Coming into 2026, inflation for the year was forecast at 2.1%; it is now expected to average 3.1%. The BOE will opt for caution moving forward, with the next expected move being a rate cut in early-2027.

Bank of Mexico (Banxico): 

Recent action (March 26): Banxico cut 25 basis points in a majority decision. Dissenters cited energy-driven inflation risks. After a one meeting pause, easing resumed in response to weak economic activity.
Upcoming (May 7): No change in the policy rate is expected. Banxico still sees inflation returning to target in the second quarter of 2027 but flagged the duration of the Iran war as an upside risk. Core inflation, which excludes volatile food and energy prices, cooled in March.

Reserve Bank of Australia (RBA): 

Recent Action (March 17): The RBA hiked 25 basis points in a 5–4 vote. Dissenters were concerned about the growth hit from the Middle East war. Inflation was already climbing pre-shock with inflation expectations rising. The RBA’s inflation fighting credibility is at risk.
Upcoming (May 5): No change in the policy rate is expected. Australia imports refined products from Asian countries that source crude via the Hormuz Strait. That puts the country particularly at risk of upstream export controls. Another rate hike is not off the table.

People’s Bank of China (PBOC): 

Recent action (March 20): No change in the policy rate. Growth in 2025 hit the targeted 5%. Core inflation receded from a February high not seen since 2019.
Upcoming action (April 20): No change in the policy rate is expected. Stockpiled oil reserves provide a short-term buffer, while the implementation of export controls could extend the cushion. The PBOC is expected to cut rates later in the year, if demand remains soft and inflation is muted.

Central Bank of Turkey (CBRT):

Recent action (March 12): No change in the policy rate. The policy rate remains 37% (down from a 50% peak at end-2024). March headline inflation cooled from February.
Upcoming (April 22): The CBRT is forecast to continue cutting rates during 2026; the size of the cuts is in question. Services inflation pushed up the central bank’s inflation forecast, which did not mention energy prices. With 10-year government bond yields up nearly 200 basis points since the Iran war began, market pressures will mount for the CBRT to put inflation to rest.

The US leads global oil and gas production, yet drilling and refining capacity have reached limits.

Benjamin Shoesmith

KPMG Senior Economist

For the first time since the inception of Central Bank Scanner, no central banks are expected to make a move at their next meeting, apart from the outlier CBRT. The energy shock has created a “wait-and-see” environment across the monetary policy world. We see widespread caution about rate cuts for fear of exacerbating inflation. There is also hesitation about hiking rates for fear of tamping down already slowing demand. The longer the strait remains closed, the more likely policy makers will pull on the reins.

Global growth is projected to slow to 2.8% on a purchasing power parity basis in 2026, well below the 3.4% we saw in 2025. Prospects look better in 2027 when oil prices recede from recent highs and supply chains should recover. Global growth is forecast to rebound 3.3% in 2027. These forecasts are materially lower than our February forecasts.

Global inflation is expected to surge to 4.3% in 2026 and cool to 3.7% in 2027. The jump in inflation is nearly one percentage point above the 3.4% pace in 2025. Inflation will likely worsen before it gets better.

Downside risks remain as threats to the Strait of Hormuz persist and Iranian Revolutionary Guard’s tolls constrain traffic. If the disruption extends to three months – we are approaching the halfway mark – Brent crude oil could test $200 per barrel. Effects are nonlinear, with hoarding, rationing and exacerbated supply-chain frictions. Demand destruction would overshadow price increases, raising the risk of swelling job losses.

Asia is most exposed given that much of the crude transiting the strait is destined for the region. China has meaningful short-term insulation from around 200 days of reserves, paired with export controls to preserve domestic energy supplies. Elsewhere, rationing has begun across parts of South and Southeast Asia (including India, Indonesia, Bangladesh, Myanmar, Sri Lanka and Nepal), with work-from-home mandates, school and office closures.

Europe is less directly exposed after diversifying away from Russian energy supplies, but localized fuel shortages are surfacing. The larger vulnerability is natural gas. Global prices have doubled, while US export capacity is maxed out. The destruction of a major Qatari facility further constrains supply. Under a three-month blockade scenario, gas prices could triple.

The Americas are better positioned given the region’s role as a major exporter, but supply responsiveness is limited. The US leads global oil and gas production, yet drilling and refining capacity have reached limits. Canada, Brazil and Mexico provide additional export capacity, though each has limited ability to ramp up output quickly. That tempers the region’s near-term buffer against global price spikes.

Global Outlook Forecast - April 2026