Live Markets: Central banks likely to tighten even with peace deal
19/05/2026 10:20
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CENTRAL BANKS LIKELY TO TIGHTEN EVEN WITH PEACE DEAL
HSBC forecasts that more central banks will raise policy rates even if a near-term peace deal is reached in the Iran war, highlighting how persistent supply disruptions are reshaping the global outlook.
Analysts at HSBC on Tuesday said disruptions around the Strait of Hormuz have tilted the balance toward higher inflation and weaker growth, forcing policymakers to act more quickly.
“Even if the strait reopens swiftly, the impact on global inflation and growth will endure," HSBC said.
Inflation pressures are already evident, with U.S. consumer prices rising at their fastest annual pace in three years, alongside sharper increases across ASEAN economies, strengthening the case for pre-emptive tightening.
"Some argue that by raising rates now central banks are “fighting the last war” but they are paying the price for taking so long to win the 2022 battle," highlights HSBC.
Across advanced economies, the brokerage expects hikes from the European Central Bank, Bank of England and Bank of Japan as early as June to July 2026, with the ECB likely to deliver multiple 25 basis point hikes.
The U.S. Federal Reserve faces a more complex path. HSBC says the Fed is balancing elevated inflation against rising growth risks. Higher oil prices, tariffs and lower immigration are adding to price pressures, while fiscal support and AI-led investment support demand. A steady unemployment rate at 4.3% adds to the challenge.
Most brokerages now expect the Fed to remain on hold throughout 2026, having pushed back expectations for rate cuts this year. However, HSBC thinks risks remain tilted toward a rate hike in 2026, with any easing more likely in 2027.
In emerging markets such as India, Indonesia and the Philippines, HSBC expects more rate hikes as inflation and currency pressures build.
"A Fed rate rise would pressure more emerging economies to tighten policy," HSBC said.
(Kanishka Ajmera)
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