Episode Details

Escalating War in Iran Impacts Emerging Market Central Banks Rate Decisions

The war in Iran has significantly impacted global oil prices, reaching nearly $120 per barrel, which has forced central banks in emerging markets to reconsider their plans for interest rate cuts. Initially, ten out of fifteen major emerging market central banks were expected to lower rates by at least ten basis points over the next six months. However, the conflict has led to a decrease in this forecast to only six banks, with smaller cuts expected.

In emerging Europe, Poland, Hungary, and the Czech Republic have shifted from likely rate cuts to possible hikes due to increased energy import costs, which make them more vulnerable amid the turmoil. Central banks now face a challenging balance between curbing inflation from pricier energy and supporting sluggish growth.

In Brazil, cuts are still on track despite slower easing bets, while Turkeys central bank may hold steady this week. As the conflict settles, the duration of elevated energy prices will play a crucial role in shaping future rate decisions, drawing lessons from the Ukraine war era when early action on inflation proved smarter than waiting.

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