Central Bank Outlook

17/03/2026

Busy week for Central Bank Meetings

The war in Iran has reverberated through energy and financial markets, rekindling inflation concerns and risks to economic growth, with sharply higher oil prices threatening to become entrenched. Energy prices are surging due to the disruption to oil and LNG supply, while the duration and extent of price increases will dictate the impact on the global economy and policy responses.

Reserve Bank of Australia (RBA)

• The RBA raised its cash rate by 25 basis points to 4.1% on Tuesday, March 17, in a split 5-4 decision, marking the second consecutive rate hike in response to domestic inflation pressures and rising energy costs from the Iran conflict.

• The tight vote and widely expected raise (even before the Iran conflict begun) saw Australian bonds trade higher, pushing yields below their pre-decision levels.

• The RBA is however expected to deliver another 25 basis point increase in May, which would take the cash rate to 4.35% by end-2026.

• Governor Michele Bullock said the board was worried about second-round effects from higher energy costs and that prices remained too high.

The US Federal Reserve (Fed)

• The Fed’s two-day policy meeting starts today, Tuesday, March 17, with a decision expected on Wednesday, March 18.

• The FOMC is expected to leave the funds rate target range unchanged at 3.50%-to-3.75%.

• The meeting is expected to signal an extended pause, with the median participant likely revising down the 2026 GDP forecast and marking up inflation expectations, suggesting only one 25 basis point cut by year-end, bringing the policy rate to 3.4%.

• The market is pricing in a -0.7% chance of a cut.

• It’s too early for any inflation or growth impacts to show up in the data plus by the time they do, current Fed Chairman Powell will have been replaced by Warsh, who is seen as more favourable to growth stimulation than putting the brakes on the economy.

• It would need the FOMC to register serious concerns about the inflationary impact from higher oil and gas prices to turn everyone’s attention to a possible rate rise which would see equities and treasuries hit hard.

Bank of Canada (BoC)

• The Bank of Canada is expected to hold its policy rate at 2.25% on Wednesday, March 18.

• Headline inflation is near its 2% target while February job losses were the highest in four years.

• On this basis it’s hard to see anything other than rates on hold given the current situation.

Bank of Japan (BoJ)

• The Bank of Japan is tipped to hold interest rates steady on Thursday, March 19, maintaining its rate at 0.75.

• The Bank of Japan's governor is likely to hint at a potential April policy-rate increase after its March meeting, amid the energy price shock and a weakening JPY.

Bank of England (BoE)

• The Bank of England is more likely to hold rates steady on Thursday, March 19.

• Governor Bailey hinted at a 50-50 cut at the previous meeting plus the UK economy is at risk of missing its Q1 0.3% growth forecast.

European Central Bank (ECB)

• The ECB is likely to remain on hold on Thursday, March 19.

• The ECB Governing Council is unlikely to change interest rates at its meeting this week, with financial markets anticipating the first hike in June.

• Rhetoric is likely to focus on the inflation risk assessment in the wake of rising energy prices, especially since markets are now leaning towards at least one 25bp hike this year.

• The ECB has good reason to keep rates on hold as inflation was set to undershoot its target prior to the Iran conflict, giving it room to see how it plays out.

• An easy option would be to acknowledge that they are monitoring the situation in the Middle East. This would likely curtail some of the hawkish positioning, given the scale of the moves we’ve seen. German two-year yields are up about 40bp so far this month.

The other G10 Central banks are expected to remain on hold this week, even though, like the RBA, they have seen increased market bets on further tightening by year-end since the outbreak of the Iran war. However, the conflict is still less than three weeks old, and President Trump has suggested it could end soon. Against that backdrop, policymakers are unlikely to commit to higher rates only to see an off-ramp emerge shortly after, energy prices retreat, and inflation risks ease.

As a result, traders will be looking for signals that those tightening expectations remain justified, but they may ultimately be disappointed. This dynamic helps explain the broader market reaction to the RBA decision, which underscores how high the bar is for hawkish surprises this week and creates upside risk for bonds.

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