This week, six major central banks—the Reserve Bank of Australia (RBA), Federal Reserve, Bank of Japan (BOJ), European Central Bank (ECB), Bank of England, and Swiss National Bank—announced their policy decisions in the wake of heightened geopolitical tensions following US and Israeli bombing of Iran on February 28. The resulting surge in oil prices and energy market volatility forced central banks to reconsider their strategies, with each delivering distinct messages despite similar rate decisions [1].
The RBA was the only central bank to hike rates, raising its cash rate by 25 basis points to 4.10% in a narrow 5–4 vote. This marked its second consecutive hike in 2026. Governor Michele Bullock emphasized that domestic inflation, with headline CPI at 3.8% in January (above the 2–3% target), was the primary driver, though the Iran conflict added pressure. The close vote led to a repricing of expectations for a further hike in May, with many doubting another tightening move is imminent [1].
The Federal Reserve held its benchmark rate steady at 3.5%–3.75%, marking its second consecutive hold after three cuts at the end of 2025. The Fed's updated 'dot plot' indicated only one rate cut expected in 2026, unchanged from December. Chair Jerome Powell stated the Fed is monitoring the Iran oil shock but is not panicking. Notably, this is likely Powell's second-to-last meeting as Fed Chair, with his term ending in May [1].
The BOJ also held its rate at 0.75% in an 8–1 vote, with board member Hajime Takata dissenting in favor of an immediate hike to 1.0%. The BOJ's message was cautious, citing Japan's heavy reliance on Middle Eastern energy imports and increased uncertainty from the Iran conflict. Most analysts expect the next BOJ hike to occur in mid-2026 [1].
The ECB kept its deposit rate at 2.0%, surprising markets with a hawkish stance. President Christine Lagarde abandoned her previous optimistic language, warning that the outlook is 'significantly more uncertain' due to the Iran conflict. The ECB revised its 2026 outlook, reflecting the changed environment [1].
CONCLUSION
Central banks responded to the Iran conflict and oil price surge with caution, mostly holding rates and signaling uncertainty ahead. The RBA stood out with a rate hike driven by domestic inflation, while the Fed, BOJ, and ECB emphasized vigilance and revised outlooks. The market takeaway is heightened uncertainty and a shift in expectations for future policy moves.