It's been a busy week for the world's main central banks. The Bank of Japan, US Federal Reserve, European Central Bank and the Bank of England left interest rates on hold this week, as expected. Inflation is front of mind given the state of the global oil market.

Amidst the US-Iran conflict, fraught geopolitics and rising energy prices, the Bank of Japan (BoJ), the US Federal Reserve, the European Central Bank (ECB) and the Bank of England (BoE) kept interest rates unchanged this week.

The ECB held rates at 2 per cent, as expected, with growth subdued and inflation estimated to rise to 3 per cent in April from 2.6 per cent in March, driven by soaring energy prices, according to Eurostat, the EU’s statistics office. Markets are also pricing in rate hikes.

As had been anticipated by the market, the BoE also held interest rates at 3.75 per cent. The conflict in Iran, and subsequent higher oil prices, have led to concerns over the outlook for economic growth and inflation, which stands at 3.3 per cent, driven by higher fuel costs. The Bank of England Monetary Policy Committee (MPC) vote carried eight to one in favour of no change, with Hugh Pill voting for a quarter-point increase. Financial markets are still pricing in rate hikes by the end of the year, given that the Middle East crisis remains acute.

The US Federal Reserve also decided to hold interest rates at 3.50 per cent – 3.75 per cent, marking a third consecutive meeting on hold, in line with expectations and market consensus. The meeting stood out for the degree of divergence within the committee, with an eight to four vote, the highest dissent since 1992. The statement described inflation as “elevated,” reflecting higher energy prices, and highlighted that risks from the Middle East are contributing to economic uncertainty.

Finally, the BoJ left its benchmark interest rate unchanged at 0.75 per cent in its April meeting. However, the six to three vote represented the biggest divide under BoJ Governor Ueda’s leadership, suggesting that more policymakers are in favour of faster monetary policy normalisation. The Japanese central bank also projected core inflation for 2028 to be above 2 per cent. The Japanese yen strengthened after the decision.

Here are some reactions from investment managers to the news.

Bank of England Reactions

Neil Mehta, portfolio manager at RBC BlueBay
“The Bank of England struck a more disciplined tone, pairing clearer scenario analysis with a broadly centrist outlook: while inflation risks remain, subdued growth and easing wage and services pressures argue against panic tightening. Markets may be overpricing near-term hikes, but with inflation still uncertain, it’s too early to turn bullish on gilts.”

Andrew Jones, portfolio manager at Janus Henderson Investors
“With significant uncertainty over when the conflict will end, the Bank will continue to monitor economic conditions closely as they focus on bringing inflation back down to its 2 per cent target over the medium term. Markets are currently expecting two or three more interest rate hikes this year, although the BoE noted that tighter financial conditions since the start of the war in Iran, alongside subdued economic growth, and a weakening labour market, would help constrain inflation to an extent. Both the equity and bond markets have initially reacted positively to rates being on hold but as active fund managers we will continue to closely monitor what companies expect the impact on demand, supply, and costs to be.”

John Wyn-Evans, head of market analysis at Rathbones
“With so much uncertainty surrounding the future effects of supply disruption from the Middle East meeting and an economy with weak momentum, it was the pragmatic decision. The Bank also published new inflation estimates in the form of scenarios rather than a central point. All of these suggested a need for tighter policy. The worst-case scenario envisages the oil price remaining around $130 per barrel with inflation rising to 6.2 per cent. The central scenario sees inflation rising to 3.7 per cent this year. Market reaction was muted but relatively positive for choice. There was a sufficient display of inflation-fighting intent to balance the overall no-change vote. Gilt yields fell a little and the pound held on to its gains from earlier in the session. The news was something of a non-event for equity markets. Futures markets are discounting a quarter-point base rate hike in July with another to follow in September.”

European Central Bank Reactions

Lauren Hyslop, investment manager at Mattioli Woods
“What is less straightforward is what comes next. A hike at the following meeting is now being priced with some conviction – a notable shift in tone from just a few months ago. The driver is not domestic: it is the Middle East. The US-Iran conflict is increasingly hard for European policymakers to look past. Energy costs are rising, supply chains are under strain, and while Europe has so far avoided the fuel rationing spreading across parts of Asia, that buffer may not hold indefinitely. European leaders are growing openly frustrated with Washington over the absence of a credible off-ramp, and the pressure on household finances is beginning to show. For the ECB, this creates an uncomfortable bind. Rate rises are a blunt tool against an energy shock that is being imported rather than generated at home. What's more that same energy shock threatens growth and jobs – a situation likely to be even trickier with higher rates. But with inflation still above target and geopolitical risks skewed to the upside, standing still for too long carries its own risks. Like other central bankers, Christine Lagarde has a fine line to walk when trying to avoid getting too far behind the curve.”

Daniele Antonucci, chief investment officer at Quintet Private Bank (parent of Brown Shipley)
“Markets face a familiar mix of higher geopolitical risk and renewed inflation uncertainty. In that environment, assets that hedge inflation and instability retain their role. Gold, broad commodities and inflation-linked bonds provide protection when energy shocks persist. Equities still look preferable to bonds. They are tied to real assets. Fixed income remains vulnerable to inflation surprises and rate risks. Within equities, Europe looks balanced rather than attractive. The geopolitical backdrop argues for caution. In fixed income, quality matters more as uncertainty rises. Government bonds again offer value at current yields. Lower-quality credit is more exposed to slower growth and tighter financial conditions. Emerging market local currency bonds remain selective opportunities. Yields are high, diversification benefits are real, and some exposure sits with oil exporters outside the conflict zone."

Max Stainton, senior global macro strategist at Fidelity International
“We see the ECB hiking in the near term to lean against the inflationary impulse of higher energy prices and supply chain disruptions in order to contain potential second round effects and ensure that the ECB clearly commit to reining in inflation. June will provide a further round of projections and scenarios, leaving them in a better position to act. Inflation expectations and forward-looking wage developments will be closely monitored going forward – with the inflation outlook for this year already likely pointing to a higher path relative to the March forecasts.”

Konstantin Veit, portfolio manager, PIMCO
"While the ECB left its policy rates unchanged, the window for looking through the energy price spike is probably closing soon. As a result, some measured adjustment of policy could take place before long, with the June meeting looking like it will be a live meeting. As of today, we do not foresee the ECB hiking more than what is currently priced into financial markets. Two hikes would lift the ECB’s main policy rate to the upper bound of the range of its neutral rate estimates (1.75 to 2.5 per cent), and would primarily serve the purpose of managing inflation expectations. If the economic disruption persists long enough, the focus should shift from inflation towards a growth problem, further alleviating the need for an aggressive hiking cycle."

US Federal Reserve Reactions

Patrick Ho, chief investment officer, North Asia at HSBC Private Bank and Premier Wealth
“USD and Treasury yields surged in reaction to this, but also driven by heightened inflation fears, as futures oil prices climbed overnight to the highest level since the Middle East conflict outbreak. Inflation remains the dominant policy constraint. Importantly, policymakers made it clear that while cuts are not imminent, hikes cannot be ruled out if inflation proves more persistent. The economy continues to expand at a solid pace, supported by resilient consumer spending and strong business investment, particularly in AI and data centre infrastructure. We remain overweight US equities, supported by strong earnings growth and a resilient macro backdrop. In fixed income, we favour high-quality carry through investment grade credit and balanced duration. We continue to emphasise diversification via alternatives, including hedge funds and gold, to navigate macro and geopolitical uncertainty.”

Kay Haigh, Goldman Sachs Asset Management
“The Fed’s updated guidance indicates that it is in a stable place when it comes to policy direction, although some members pushed for more two-sided language. While upside risks to inflation have increased, the Fed is keeping one eye on potential weakness in growth and the labour market. This balance could see rates being brought back down to neutral later this year; however, the committee will be sensitive to a re-escalation in Iran and rising energy prices, and could keep policy restrictive in that scenario.”

Josh Jamner, senior investment strategy analyst at ClearBridge Investments
“The biggest question heading into the FOMC press conference was if chair Powell would indicate that he would or would not stay on as a Fed Governor after his term as chair ends in two weeks. Powell kicked things off by stating that he intends to stay on for the time being, suggesting that there are further steps remaining for the DOJ investigation to be “well and truly over with transparency and finality” but that once those steps were achieved, he would step down as Governor. This means that the addition of Kevin Warsh to the FOMC will not swing the balance between doves and hawks, as Warsh will take Stephen Miran’s seat given that Powell’s seat will not be open for the time being.”

Max Stainton, senior global macro strategist at Fidelity International
“Looking ahead, the rates outlook for the rest of the year will increasingly be determined by the duration of the conflict in the Middle East. Our base case continues to shave dovish vs market pricing, as we expect incoming chair Warsh, and the broader committee will want to lean against the growth damage from the energy shock with at least one cut by year end. However, with the risks of the Strait of Hormuz staying closed for longer rising, there are clear risks that the energy price shock starts broadening out into a larger inflation shock across the whole of the economy. We still expect one cut this year, but the risks are clearly skewed to ‘no action’ for the rest of the year.”

Mark Haefele, chief investment officer at UBS Global Wealth Management
“We believe the economic backdrop remains resilient despite higher energy prices and ongoing geopolitical risks. While elevated oil prices are a headwind, we expect them to decline by late 2026 and do not anticipate they will derail growth unless the shock proves prolonged. In the US, consumer spending and the labour market continue to provide support. Headline inflation is likely to rise further in the near term, but we see limited pass-through to core inflation, which we expect to begin declining from 2Q as tariff rates have decreased in recent months. We also expect oil-related growth headwinds to tilt growth back to trend by the second half, further supporting a softer inflation trend. Against this backdrop, we continue to expect the Fed to begin cutting rates later this year with 25-basis-point reductions projected in both September and December, though risks are clearly skewed to a later start. We continue to recommend that investors diversify exposure across sectors and asset classes, including equities, quality bonds, and commodities.”

Bank of Japan

Mark Haefele, chief investment officer at UBS Global Wealth Management
“The BoJ wants to avoid premature rate hikes that could undermine the country’s current economic momentum, but acknowledges that excessive yen weakness may encourage speculative carry trades and accelerate capital outflows. Given the still uncertain situation in the Middle East and the “rate check” by the New York Fed in January amid yen weakness, Ueda may try to signal gradual tightening without committing to aggressive action. We continue to expect the Japanese yen to recover over the medium term as energy price volatility moderates and the Fed cuts rates later this year. The upcoming Golden Week in Japan and thinner liquidity, however, may increase the risk of outsized FX moves in the days ahead.”

Patrick Ho, chief investment officer, North Asia at HSBC Private Bank and Premier Wealth
“Our base case remains that the BoJ will conduct one more 25 bp rate hike in July, although the risk of a hike in June is rising. On the back of elevated valuations, risks to earnings from the energy shock and the overhang of a faster pace in rate hikes, we recently downgraded Japanese equities to neutral. We maintain our neutral stance on Japanese yen and Japanese government bonds given the more balanced upside and downside risks.”