Macro

The Bank of Japan has raised its policy interest rate to 1.25%, the highest level in 31 years, as it seeks to counter inflation pressures driven by energy costs. The move follows a June increase to 1%, with inflation now running close to 2%. The central bank said it is concerned prices could rise further.

India’s retail inflation has climbed to a 20-month high of 4.82%, strengthening the case for an interest-rate increase. Most economists expect the Reserve Bank of India to raise its policy rate by 25 basis points to preserve the yield gap that supports foreign investment. The US Federal Reserve’s recent rate increase and a rise in the US 10-year yield have added pressure for tighter policy in India. The RBI last changed the repo rate in December 2025, cutting it by 25 bps to 5.25%.

The Bank of England kept its benchmark interest rate unchanged at 3.75% on Thursday but warned it could be forced to raise borrowing costs if the Iran war drags on. The central bank forecast UK inflation will rise above 4% early next year, well above its previous peak estimate of 3.2%. The Monetary Policy Committee voted 6-3 to hold rates, matching July’s split. Inflation has been below the 2% target in only three months over the past five years, complicating the chancellor’s efforts to project confidence ahead of the Oct. 28 budget.

The Bank of England kept its benchmark interest rate unchanged at 3.75%, but the Monetary Policy Committee was split, with three members calling for a 25-basis-point increase to 4%. Markets expect the central bank could begin raising rates in November or December to counter inflation pressure from higher fuel prices driven by the Iran conflict.

The U.S. Federal Reserve raised rates overnight by 25 basis points to a 3.75-4.00% range, its first hike since July 2023, and signaled it could tighten again later this year. The move is expected to increase pressure on the Bank of Korea to keep pace. The BOK has already lifted its policy rate to 3% through back-to-back hikes in July and August.

Brazil’s central bank cut the Selic rate by 25 basis points for a fifth straight meeting, taking it to 13.75% in line with most economists’ expectations. The move comes ahead of Brazil’s presidential election and on the same day the U.S. Federal Reserve raised its benchmark rate, heightening attention on a potentially narrowing interest-rate gap. Policymakers said further adjustments will depend on new information to bring inflation back to target. Election uncertainty and higher oil prices are adding to the risks around the economic outlook.

The Federal Reserve raised interest rates on Sept 16 for the first time in more than three years and said more tightening is likely as it battles persistently high inflation. U.S. stocks finished lower, with the Dow Jones Industrial Average down 631.33 points and the S&P 500 off 33.59 points. In tech, semiconductor shares rose 0.6%, while Boeing fell 3.7% after the company flagged delays in stabilizing 737 MAX production.

The Federal Reserve raised interest rates for the first time in three years to rein in high inflation, which has been worsened by military tensions between the U.S. and Israel and Iran. U.S. stock indexes fell at the open before clawing back some losses, while tech shares held up better than the broader market. Saudi Arabia offered additional crude supplies, easing fears of Middle East disruptions and pushing oil prices lower, which weighed on energy stocks.

The Federal Reserve, Bank of England and Bank of Japan are wrestling this week with how to set interest rates when inflation is being pushed around by factors outside their control. Markets overwhelmingly expect the Fed to raise rates by 25bp, but a 5.9% jump in wireless telephone services prices in August has revived the kind of policy debate seen in 2017. The Bank of England is expected to slow the pace of quantitative tightening, while Brent crude has moved back above $100 amid intensifying conflict around Hormuz that has included a drone hit on Saudi Arabia’s EastWest pipeline and continuing threats to commercial shipping.

The Federal Reserve is widely expected to raise its policy rate by 25 basis points, taking the target range to 3.75%-4%. A stronger dollar, a US 10-year Treasury yield that has briefly crossed 5%, and Brent crude holding above $100 a barrel are adding to the pressure on India, where the rupee is near 96 and inflation rose to 4.82% in August. The Reserve Bank of India is facing tighter constraints in managing the currency and liquidity as bond yields, equities and the inflation outlook remain under strain, according to Reuters.