Central banks in major economies are maintaining their current policy rates as they assess the impact of persistent inflation, largely driven by surging energy prices and ongoing geopolitical tensions. The Bank of Canada (BoC) is expected to keep its overnight target at 2.25% for a fourth consecutive meeting, with policymakers reiterating that policy is 'appropriately calibrated' despite a spike in headline Consumer Price Index (CPI) due to war-driven energy costs. The BoC is likely to modestly downgrade its GDP outlook and mark up its all-items inflation forecast, while core inflation projections remain largely unchanged. Risks to growth are seen as skewed lower, and risks to inflation are skewed higher, with the labor market underperforming expectations [1].
Similarly, the Federal Reserve (Fed) is anticipated to hold its federal funds target range at 3.50%–3.75% for a third consecutive meeting, resisting political pressure for rate cuts as inflation remains above target and oil-driven price shocks persist. Commerzbank analysts expect the Fed to resume rate cuts toward the end of the year as inflation eases, but note that the US Dollar may weaken over time due to excessive US easing and concerns about Fed independence [2].
The ongoing closure of the Strait of Hormuz is exacerbating inflation risks globally, with MUFG projecting crude oil prices to average USD 115 per barrel in Q2. This is expected to lift US inflation toward 3.8% later in the year, with significant increases already seen in agricultural input costs such as nitrogen fertilizer (up over 30%), urea (up 47%), and farm diesel (up 46%). These developments are likely to increase global market volatility and pressure central banks to respond more aggressively [3].
In Norway, the Norwegian Krone (NOK) has largely completed its re-rating after a strong run supported by energy prices and hawkish Norges Bank policy. However, recent outflows and fading hedge demand signal that policy expectations have peaked, with Norges Bank indicating only one further hike. Norway’s consumer confidence index remained deeply negative at -19.1 in April, reflecting persistent pessimism due to high energy and commodity prices, trade uncertainty, and expectations of further rate increases [4].
In the UK, stronger-than-expected inflation and robust Purchasing Managers' Index (PMI) data are challenging dovish expectations for the Bank of England (BoE). Headline CPI accelerated to 3.3% year-on-year in March, with services inflation at 4.5% and goods at 2.1%. The BoE is expected to hold rates unanimously, with no meaningful near-term disinflation anticipated. The manufacturing PMI rose to 53.6 and services to 52.0, while the unemployment rate decreased by 0.3 percentage points to 4.9%. Societe Generale analysts see a low probability of a rate hike, but note that a hawkish hold could briefly support GBP [5].
CONCLUSION
Central banks across North America and Europe are maintaining a cautious stance, holding rates steady as they monitor persistent inflation pressures fueled by energy shocks and geopolitical events. Market volatility is expected to remain elevated, with forward guidance suggesting limited near-term easing and a focus on containing inflation expectations. The outlook remains uncertain, with risks to growth and inflation diverging across regions.