Iran War Sparks Inflation, Emerging Market Central Banks Launch Wave of Rate Hikes
N.R. Finch
Since the Iran war broke out, at least 10 emerging-market central banks have hiked rates to combat surging inflation, while the Fed, ECB, and BOJ hold steady — the developing world is building an interest-rate firewall ahead of the rich economies.
Why are emerging-market central banks moving first?
Over the past two weeks, Indonesia, Rwanda, South Africa, and Sri Lanka all tightened policy. Norway and Australia are the only developed economies to follow.
This means → emerging-market central banks are not waiting for Fed or ECB signals; they are raising rates pre-emptively to defend their currencies and block imported inflation.
Allspring fund manager Lauren van Biljon says the playbook comes from the last cycle — these central banks hiked before developed peers after COVID, and cut later too. They are running the same "move first" strategy again.
The Strait of Hormuz is disrupted — how big is the impact?
The Iran war has choked shipping through the Strait of Hormuz, which normally carries roughly one-fifth of the world's seaborne oil and LNG and about one-third of global fertiliser trade.
In plain terms = a major artery for energy and food has been squeezed, pushing oil, gas, and fertiliser prices up simultaneously and feeding directly into headline inflation worldwide.
Governments are responding with energy price caps and fuel-tax cuts to cushion the blow.
What are India and the Philippines doing next?
The Reserve Bank of India has pledged to curb rupee speculation and is weighing a rate hike this week.
The Bangko Sentral ng Pilipinas has gone further: it may call an emergency meeting before its scheduled June 18 session and is considering a large hike.
This reflects how acute the anxiety over currency depreciation and capital outflows has become in Asia's emerging economies — too urgent to wait for the next scheduled meeting.
Is an ECB rate hike next week a done deal?
Eurozone inflation has breached 3% for the first time in over two and a half years, all but cementing expectations for an ECB hike next week.
Belgian central-bank governor Wunsch, an ECB Governing Council member, told the Financial Times that even if the US and Iran reach a peace deal before the June 11 meeting, the case for a hike still stands — just "slightly less compelling."
Swap-market pricing puts the probability of the ECB raising its deposit rate from 2% to 2.25% at 98%.
This means → the market treats a 25-basis-point hike as a foregone conclusion; the real suspense is whether more hikes follow.
Content is for reference only, not financial advice.