Former BOJ chief warns Iran war could force faster rate hikes

Wednesday 13 May 2026 - 13:52

By: Dakir Madiha

Former BOJ chief warns Iran war could force faster rate hikes

Central banks across major economies are reassessing monetary policy as the conflict involving Iran continues to push oil prices above 100 dollars per barrel, intensifying concerns over imported inflation and energy costs. Policymakers from Europe to Asia are increasingly signaling that prolonged geopolitical instability could delay or reverse earlier expectations for looser monetary conditions.

The European Central Bank is now widely expected to raise interest rates by 25 basis points at its June meeting. Market pricing last week showed a strong probability of a rate increase after the ECB kept rates unchanged at 2% in April while acknowledging mounting risks linked to the Middle East conflict. Officials have warned that sustained energy price pressures could complicate the eurozone inflation outlook during the second half of the year.

In the United Kingdom, the Bank of England kept its benchmark rate at 3.75% during its latest policy meeting, though one policymaker voted for an immediate increase. British inflation has accelerated in recent months, with officials cautioning that higher fuel and energy costs are likely to feed into broader consumer prices. The central bank’s next decision in June is expected to be closely watched by markets seeking clues about the pace of future tightening.

India’s central bank has also adopted a more cautious stance. Reserve Bank of India Governor Sanjay Malhotra warned that authorities may need to intervene if inflation expectations become entrenched. Indian officials have acknowledged that prolonged tensions in the Middle East could eventually force domestic fuel price increases, increasing pressure on households and businesses in one of the world’s largest energy-importing economies.

In Japan, former Bank of Japan Governor Haruhiko Kuroda said a prolonged conflict involving Iran could push the BOJ toward faster policy normalization or even monetary tightening. His comments came as Japan continues to monitor the yen and imported inflation risks linked to higher commodity prices. Although the BOJ kept rates steady in April, concerns remain that sustained energy costs could eventually alter the central bank’s cautious approach.

Not all countries are moving toward tighter policy. Bank of Zambia cut its benchmark rate by 75 basis points earlier this year after inflation eased sharply. The decision contrasted with the broader global trend of central banks maintaining restrictive policies as energy-driven inflation continues to pressure economies worldwide.

Oil prices have remained elevated since maritime disruptions intensified around the Strait of Hormuz earlier this year. Brent crude traded above 100 dollars per barrel through much of April and May, sustaining inflationary pressure across transport, manufacturing and consumer sectors and complicating the outlook for global monetary policy.