Major central banks have raised interest rates one after another in response to the energy shock stemming from developments in the Middle East. The turning point in the interest-rate cycle from September 2026 and emerging markets' defense of their currencies will be the focus.
The energy shock caused by the conflict in the Middle East prevented monetary easing from being prolonged, forcing many central banks to raise rates or reconsider their policy operations. In late September, the FRB raised the federal funds rate to 3.75%-4.00%, the ECB raised its deposit rate to 2.5%, and the Bank of Japan raised its policy rate to 1.25%. This widened policy differences across regions.
The People's Bank of China kept the one-year LPR at 3.00% and the five-year LPR at 3.50%, maintaining benchmark rates at historic lows. The Philippine central bank raised its rate to 5%, while Bank Indonesia kept its policy rate at 5.75% following a second-quarter hike. The Reserve Bank of India kept its rate at 5.25% and the Bank of Thailand at 1.00%, highlighting differences in interest-rate levels across Asia.
As the next stage, the FRB's dot plot indicates the possibility of an additional rate hike within the year, while Europe may raise rates for a third time in December. Policymakers continue to face the challenge of balancing support for growth with containing long-term interest rates, while emerging markets are seeking to reconcile the risk of capital outflows with exchange-rate stability.
The IMF forecasts global economic growth of 3.0% in 2026 and 3.4% in 2027, and the outlook indicates that developments in the Middle East will remain an important factor influencing interest-rate trends over the coming months.