Central bank scanner: Oil shock collides with monetary policy

European Central Bank (ECB): 

• Recent action (March 19): No change in the policy rate in a unanimous decision. Inflation accelerated from January’s surprisingly low print but does not detract from progress made on inflation.   

• Upcoming (April 30): No change in the policy rate is expected. The ECB has dealt with energy shocks before, when Russia invaded Ukraine. Policymakers stated they were in a solid place from which to respond to the energy shock.  A rate hike or two may be possible depending upon how long the war drags on.

Federal Reserve (Fed): 

• Recent action (March 18): No change in the policy rate. One voting member dissented. Over the last five meetings, Stephen Miran dissented, voting for three 50 basis point cuts, followed by two 25 basis point cuts. The labor market looks weaker, balanced but heavily dependent upon healthcare for job creation. Over the last two quarters, the economy has shed 6,000 jobs but the unemployment rate has not really moved. Solid economic growth without job creation is not a historically observed relationship.  

• Upcoming (April 29): No change in the policy rate is expected. However, the Fed could signal a more balanced bias to rate hikes and cuts. The fact that inflation was elevated for five years ahead of the crisis and the tail associated with disruptions to oil production will further splinter views as the two mandates come into tension. A rate hike instead of an additional cut is now more likely in the second half. We expect the Fed to resume rate cuts in 2027, depending upon the length of the war, damage to oil infrastructure and spillover effects to inflation.

Bank of Canada (BOC): 

• Recent action (March 18): No change in the policy rate. Concerns around the contraction in growth in the fourth quarter outweighed inflation worries.

• Upcoming (April 29): No change in the policy rate is expected. The BOC is expected to be patient in making its next move. Policymakers indicated they would “look through” the energy price shock but stop short of allowing it to become ingrained. A 25-basis point rate increase is forecast in the second quarter.

Central Bank of Brazil (BCB): 

• Recent action (March 17): The BCB cut rates 25 basis points. The Selic broke through the 15% level for the first time since June 2025 after the BCB hiked rates to deal with resurgent inflation. Actual inflation and inflation expectations were elevated but still on a path to reach target prior to the oil price shock.

• Upcoming (April 28): The BCB is forecast to cut rates by 25 basis points. It offered no guidance; however, with much room to go. It expects price increases due to the oil shock, so a smaller rate cut could be warranted. The BCB said it would proceed with “cautiousness.”

Bank of Japan (BOJ): 

• Recent action (March 19): No change in the policy rate in an 8-1 vote. The dissenting vote was in favor of a hike as second round inflation effects are becoming a concern. Inflation is near 2% for both headline and the core consumer price index.

• Upcoming (April 28): The BOJ is forecast to hike 25 basis points. Most members of the BOJ’s board are concerned about upside risks to inflation. With a hike already impending due to strong wage gains and a policy rate below neutral, the oil shock seals the deal. The BOJ could hike rates up to three times by the end of 2027.

Reserve Bank of India (RBI): 

• Recent action (February 6): No change in the policy rate in a unanimous decision. Inflation near the center of the central bank’s target range and the fact that growth is holding up made the case for a pause. 

• Upcoming (April 9): No change in the policy rate is expected. Inflation is expected to head higher as energy prices spike, peaking 2.2 percentage points higher than forecast last month for the second quarter. India is particularly susceptible to energy price shocks. Two rate hikes are expected this year.

Bank of England (BOE): 

• Recent action (March 19): No change in the policy rate in a unanimous vote. Four members of the Monetary Policy Committee said they would have opted for a rate cut had it not been for the Iran War. Upwardly revised pay growth figures provide further reason for the hold. 

• Upcoming (April 30): No change in the policy rate is expected. The BOE has indicated that it would be forced to act if the war in Iran is sustained and causes persistent inflation. Prior to the war, BOE forecast that inflation would return to 2% in April. It now expects inflation between 3% and 3.5% for the next few quarters. Inflation could go meaningfully higher.

Bank of Mexico (Banxico): 

• Recent action (February 6): No change in the policy rate. That was the first meeting without a rate cut since mid-2024. Services pushed core inflation higher, giving the Banxico pause. 

• Upcoming (March 26): No change in the policy rate is expected. The oil shock is forecast to have a low to moderate impact on Mexico because the country is a net oil exporter. Sluggish growth is forecast to prompt the central bank to cut rates twice in the second half of 2026. 

Reserve Bank of Australia (RBA): 

• Recent Action (March 17): The RBA hiked rates 25 basis points in response to higher inflation ahead of the war in the Middle East. The question is now whether rates are restrictive enough to derail inflation.

• Upcoming (May 5): No change in the policy rate is expected. The RBA is likely to “wait and see” if recent moves will be enough to stave off price pressures. 

People’s Bank of China (PBOC): 

• Recent action (March 20): No change in the policy rate. Growth in 2025 surprised to the upside on export growth. Core inflation hit its highest point since early-2019 in February.
• Upcoming action (April 20): No change in the policy rate is expected. China stockpiled oil ahead of the war in the Middle East, cushioning the more immediate effects of the energy shock. The PBOC is expected to avoid hiking rates in response to soft consumer loans and growth.

Central Bank of Turkey (CBRT): 

• Recent action (March 12): No change in the policy rate. The policy rate is 37%, down from a peak of 50% at the end of 2024. Inflation stabilized ahead of the war in the Middle East. Markets expected the CBRT to reduce its policy rate prior to the war.
• Upcoming (April 22): The CBRT is forecast to continue cutting rates during 2026; the size of the cuts is in question. The January cut was smaller than consensus estimates. Inflation risks are to the upside due to energy prices. Those shifts could slow the pace of easing.