Central banks around the world signaled caution in March, largely keeping interest rates steady amid growing uncertainty tied to the war in the Middle East and swings in oil prices. Policymakers cited the prospect of renewed upward pressure on prices and softer growth prospects as reasons to delay aggressive policy moves, complicating the path toward monetary easing.
In a month dominated by a conservative tone on rates, developed market central banks almost universally refrained from adjusting borrowing costs. Of nine policy meetings held in March across major developed economies, eight concluded with no change to rates. Australia was the exception, raising its benchmark by 25 basis points.
That limited activity left the year-to-date stance in developed markets in modestly tighter territory - a net 50 basis points of tightening, reflecting two separate hikes from Australia earlier in the year.
Emerging markets displayed slightly greater variation in their decisions but maintained a broadly cautious approach. Of 15 meetings this past month, 10 central banks opted to hold policy rates unchanged. Four economies enacted modest cuts: Russia lowered its rate by 50 basis points, while Brazil, Mexico and Poland each trimmed rates by 25 basis points. Colombia diverged from the easing trend with an aggressive 100 basis point hike at its latest meeting, a move that prompted the government to withdraw from the central bank’s board.
Even where easing has begun in some economies, central bankers flagged restraint. Officials in Indonesia, South Africa, the Philippines, Hungary and the Czech Republic explicitly pointed to heightened uncertainty associated with the Middle East conflict and its potential to push up inflation as a key reason to slow or limit rate reductions.
"It will take time for central banks to recognize the magnitude of the (oil price) shock and assess its lasting impact. But forecasts will immediately bias towards higher inflation and lower growth. Initially, we expect uncertainty to promote caution, against a backdrop of policy stances that are close to neutral in most countries," said JPMorgan in a mid-month note.
The mixed policy moves reflect an uneven global progress in disinflation and the constraints facing central banks when global conditions shift. Over the course of this year so far, emerging market central banks have produced a net easing of 175 basis points. That figure results from 10 rate cuts summing to 375 basis points, which have been partially offset by two hikes in Colombia totaling 200 basis points.
Policymakers’ reluctance to move quickly on easing highlights the tension between slowing growth and the renewed upside risk to prices, particularly from energy markets. Volatile oil prices were repeatedly cited as a complicating factor for the timing and extent of any future policy loosening.
With both developed and emerging market central banks signaling caution, the outlook for further monetary accommodation appears conditional on how geopolitical developments evolve and how sustained any associated energy-price shocks prove to be. For now, the prevailing message from most policymakers is one of patience - preferring to wait for clearer signals on inflation and growth before making decisive changes to interest-rate trajectories.