The agreement between the United States and Iran to end their war, and the subsequent fall in oil prices, have eased one immediate inflation risk for policy makers. Lower energy costs reduce the likelihood that high fuel prices will feed through to broader inflation, a development welcomed by central bank governors concerned about spillovers to consumer prices. Even so, several developed-market central banks remain in a tightening posture and others have warned they stand ready to act if inflation builds again.
Overview
At present, four developed-market central banks are actively raising interest rates. Several others have signalled readiness to tighten further if inflation proves persistent. Below is an ordered review of Group of 10 central banks ranked from the highest policy rate to the lowest, with each institution's most recent decision and the policy outlook reported by officials.
1/ Australia - Reserve Bank of Australia
The Reserve Bank of Australia has moved its policy rate to 4.35% after three increases so far this year, the highest level among the G10. Those hikes were aimed at blunting an energy-driven inflation shock and have fully reversed the cuts enacted the previous year. The RBA paused at its most recent meeting, noting that tighter financial conditions are weighing on the economy, but it cautioned that further increases remain possible. Market pricing implies roughly a 50% chance of at least one additional lift later in the year.
2/ Norway - Norges Bank
Norges Bank left its policy rate unchanged at 4.25% at its last meeting, but it maintained that inflation remains too high and that borrowing costs will likely need to be raised again before year-end. The bank moved its rate higher in May, and annual core inflation unexpectedly rose to 3.4% in that month, prompting officials to signal a continued tightening bias.
3/ Britain - Bank of England
The Bank of England kept interest rates on hold at 3.75% in June. Policymakers judged it premature to declare the inflation threat over amid uncertain momentum in price pressures. At that meeting only two of the nine rate-setters voted to increase rates. The BoE expects inflation to climb above 3.25% in the final quarter of the year, up from 2.8% in May, though this projected rise is smaller than the bank expected in April under two of its three main scenarios. Market participants price at least one hike this year.
4/ United States - Federal Reserve
The Federal Reserve held its policy rate steady as expected, but fresh projections and remarks from Fed leadership surprised markets and prompted investors to price in a possible rate increase within months. The central bank issued a more concise policy statement while quarterly projections indicated that nine Fed officials now anticipate a rate hike by the end of 2026. Market-implied probabilities point to a meaningful chance of a September increase and assess a second move before year-end as more likely than not. Those developments produced a sharp rise in short-term bond yields and a stronger dollar.
5/ New Zealand - Reserve Bank of New Zealand
The Reserve Bank of New Zealand does not convene again until early July. Markets currently see an increase from the prevailing 2.25% rate as likely at that meeting, with the possibility of additional rises later in the year. The RBNZ faces a difficult trade-off: inflation is expected to move well above the bank's 1% to 3% target band, even as the jobless rate sits at a decade high.
6/ Canada - Bank of Canada
The Bank of Canada kept its policy rate at 2.25% last week, noting there were few signs that higher energy costs had fed through into broader inflation. The BoC is expected to remain on hold in the near term. Recent data show inflation continuing to sit within the bank's 1% to 3% target range.
7/ Euro zone - European Central Bank
The European Central Bank raised interest rates for the first time in nearly three years at its most recent meeting, aiming to curb inflation before energy-cost shocks stemming from the Iran war spread more widely across the euro-area economy. The well-telegraphed move raised the deposit rate to 2.25%. Market pricing indicates traders expect one more 25 basis-point hike by the end of the year.
8/ Sweden - Riksbank
Sweden's central bank left its policy rate unchanged at 1.75% as anticipated. The Riksbank said the probability of a rate increase later in the year has risen because the conflict in the Middle East has heightened inflationary pressure, but it also noted that underlying inflation remains low.
9/ Japan - Bank of Japan
The Bank of Japan raised its policy rate to 1%, a level it described as a 31-year high, marking a notable step in policy normalisation. The BOJ signalled it stands ready to tighten further should price pressures require it. While further increases could help underpin the weak yen, Japanese interest rates remain low relative to most of their G10 peers.
10/ Switzerland - Swiss National Bank
The Swiss National Bank maintains the lowest policy rate in the G10 at 0% and left rates unchanged. SNB officials said medium-term price pressures have barely shifted despite a recent uptick in inflation driven by higher fuel costs. Policymakers continue to wrestle with the franc's strength, are cautious about returning to negative rates, and said they remain prepared to intervene in currency markets to ease the franc if necessary.
Implications for markets and sectors
- Energy: A decline in oil prices reduces an immediate inflation channel, easing pressure on central banks and commodity-sensitive sectors.
- Fixed income and FX: Shifts in rate expectations - notably around the U.S. Fed and Norway - have driven moves in short-term yields and the dollar; emerging shifts in the BOJ's stance could affect the yen relative to peers.
- Banks and financials: Continued rate differentiation across the G10 influences net interest margins, funding costs, and cross-border capital flows for banks and insurers.
Bottom line
While easing energy costs have reduced one near-term inflation worry, the policy landscape among G10 central banks remains mixed. Several banks are actively tightening or signalling further hikes, and major institutions say they will act should inflation reaccelerate. That combination of remaining tightening bias and reduced energy risk will continue to shape bond markets, currencies, and financial-sector earnings into the months ahead.