Major central banks around the globe are heading to a week of their respective committee meetings, trying to stay firm on their policy path and goals of keeping inflation at bay in the face of ever-growing risks – from U.S. President Donald Trump’s tariffs to fresh conflict in the Middle East.

The U.S. central bank will lead the way and is likely to announce after the second day of its meeting on June 18 that it would keep interest rates unchanged for a fourth straight time, despite Trump’s push for rate cuts, as officials contend with uncertainty sparked by the Republican’s tariffs.

While the independent U.S. Federal Reserve (Fed) has started lowering rates from recent highs, officials have held the level steady this year as Trump’s tariffs began rippling through the world’s biggest economy.

The Fed has kept interest rates between 4.25% and 4.50% since December, while it monitors the health of the jobs market and inflation.

“The hope is to stay below the radar screen at this meeting,” KPMG chief economist Diane Swonk told Agence France-Presse (AFP).

“Uncertainty is still very high.”

“Until they know sufficiently, and convincingly that inflation is not going to pick up” either in response to tariffs or related threats, “they just can’t move,” she said.

Later during the week, the Bank of England (BoE), the Central Bank of the Republic of Türkiye (CBRT), and the Bank of Japan (BOJ) would also share their decisions on the interest rates.

Both the BoE and the Turkish central bank have their monetary policy meetings (MPC) on Thursday at midday, while Japanese policymakers would gather on Friday.

The Bank of England has cut the U.K.’s official interest rate by a quarter point to 4.25% last month as it sees the potential impact of U.S. tariffs on growth.

Despite a divided 5-4 vote in favor of cutting borrowing costs, this decision has proven to be timely, as recent data showed that the output of the British economy contracted by 0.3% in April, the same month in which Trump introduced his sweeping tariffs on most nations.

Economists, however, expect the bank to pause its easing this week.

All 60 economists polled by Reuters expect the BoE to keep rates on hold at 4.25% this month, and almost all expect the next quarter-point rate cut to come in August.

So far, the central bank has taken what it calls a “gradual and careful” approach to cutting rates due to persistent inflation pressures and wage growth, only reducing rates four times, or every quarter, since August 2024.

Since returning to the presidency, Trump has slapped a 10% tariff on most U.S. trading partners, including the U.K. and Türkiye.

Higher rates in dozens of economies will take effect in July, unless an existing pause is extended.

Trump has also engaged in a tit-for-tat tariff war with China and imposed levies on steel, aluminum and automobile imports, rattling financial markets and tanking consumer sentiment.

Major financial institutions from the World Bank to the Organisation for Economic Co-operation and Development (OECD) have warned of a slowdown in global economic growth due to levies and accompanying uncertainty, which makes it difficult for companies and investors to plan long-term.

The World Bank in its latest report lowered the global growth forecast for 2025 by four-tenths of a percentage point to 2.3%, citing that higher tariffs and heightened uncertainty posed a “significant headwind” for nearly all economies. It projected that the global economy was set for its worst run since the 2008 financial crisis.

Coupled with other risks, including impacts on energy markets from fresh conflict between Israel and Iran, Israel’s ongoing Gaza attacks, as well as the Russia-Ukraine war, the central banks thus find themselves in a constant precautionary state with less space for maneuver.

CBRT likely to keep rate unchanged

The Turkish central bank is also expected to keep the policy interest rate unchanged this week, according to a recent poll by the Anadolu Agency (AA).

Despite inflation easing to the lowest since late 2021, the CBRT is likely to maintain rates at 46%, according to 19 of 23 economists polled by AA. Others projected a rise ranging from 100 to 350 basis points.

A rate cut is seen as a possibility at the next meeting on July 24, given that the bank is expected to restart its easing cycle this summer. Reuters poll shows that the easing cycle, once restored, would continue until at least mid-2026.

The average year-end forecast among the surveyed economists by AA is 35.5%.

Annual inflation in Türkiye eased to a lower-than-expected 35.41% in May, according to the official data.

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Global stock markets plunged on Friday while oil prices soared to near multi-month highs after Israel launched a military strike on Iran, triggering Iranian retaliation and fueling a flight to safe-haven assets like gold, the U.S. dollar and the Swiss franc.

The escalation in the Middle East – a major oil-producing region – adds uncertainty to financial markets at a time of heightened pressure on the global economy from U.S. President Donald Trump’s aggressive and erratic trade policies.

Market reaction, which had abated in early European trade, gathered a renewed momentum as the session wore on.

Brent crude oil prices were last up almost 9% at $75.54 per barrel, having jumped as much as 14% during Asian hours. They were set for their biggest one-day jump since 2022, when energy costs spiked after Russia’s invasion of Ukraine.

U.S. oil futures rose almost $6 to $73.91.

Israel claimed it had targeted Iran’s nuclear facilities, ballistic missile factories and military commanders on Friday at the start of what it warned would be a prolonged operation to prevent Tehran from building an atomic weapon, while Iran has promised a harsh response.

Iran had launched about 100 drones toward Israeli territory in retaliation. Washington said it was not involved in the Israeli offensive.

World leaders urged restraint, while Trump urged Iran to make a deal over its nuclear program, saying that there was still time for the country to prevent further conflict with Israel.

Eyes on oil flow

The National Iranian Oil Refining and Distribution Company said oil refining and storage facilities had not been damaged and continued to operate.

The primary concern was whether the latest developments would affect the Strait of Hormuz, said SEB analyst Ole Hvalbye. The key waterway had been at risk of impact from increased regional volatility previously but had not been affected so far, Hvalbye said.

There also was no impact on oil flow in the region so far, he added.

About a fifth of the world’s total oil consumption passes through the strait, or some 18 million to 19 million barrels per day (bpd) of oil, condensate and fuel.

Analysts at consultancy Sparta Commodities said that any significant crude supply disruptions would lead to sour crude grades being marginally priced out of refineries in favor of light sweets.

Under a worst-case scenario, JPMorgan analysts said on Thursday that closing the strait or a retaliatory response from major oil-producing countries in the region could lead to oil prices surging to $120-$130 a barrel, nearly double their current base case forecast.

“The key question now is whether this oil rally will last longer than the weekend or a week – our signal is that there is a lower probability of a full-blown war, and the oil price rally will likely encounter resistance,” said Janiv Shah, analyst at Rystad.

“Fundamentals show nearly all Iranian exports going to China, so Chinese discounted purchases would be most at risk here. OPEC spare capacity can provide the stabilizing force,” he added.

An increase in oil prices would also dampen the outlook for the German economy, the economic institute DIW Berlin said on Friday. It is the only G-7 nation that has recorded no economic growth for two consecutive years.

“The increased uncertainty speaks in favour of a higher risk premium on the oil price, which is why it is unlikely to fall below $70 on a sustained basis for the time being … Fundamental data is taking a back seat in the current situation,” analysts at Commerzbank said in a note.

Safe-haven rush

In other markets, stocks dived and there was a rush to safe havens such as gold and the Swiss franc.

Gold, a classic safe haven at times of global uncertainty, rose 1% to $3,416 per ounce, bringing it close to the record high of $3,500.05 from April.

The rush to safety was matched by a dash out of risk assets. U.S. stock futures fell over 1%, European shares dropped almost 1% and in Asia, major bourses in Japan, South Korea and Hong Kong fell over 1% each.

“Clearly the big question is how far does this go?,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London, referring to the Middle East tension.

“The market has got it right in terms of stocks down, oil and gold up.”

The developments mean another major geopolitical tail risk has now become a reality at a time when investors are wrestling with major shifts in U.S. economic and trade policies.

“The geopolitical escalation adds another layer of uncertainty to already fragile sentiment,” said Charu Chanana, chief investment strategist at Saxo, adding that crude oil and safe-haven assets will remain on an upward trajectory if tensions continue to intensify.

The Israeli shekel fell almost 1.7% and long-dated dollar bonds for Israel, Egypt and Pakistan slipped.

Two-way pull for bonds

U.S. Treasuries initially benefited from the rush for safer assets, but as the day wore on focus turn to the inflationary impact of oil.

U.S. 10-year Treasury yields were last up 2.6 basis points (bps) at 4.38%, having touched a one-month low of 4.31%. Bond yields move inversely to prices.

“This is a flight-to-safety event. But markets are struggling a bit and in the fixed income space you have an oil-price shock that is inflationary and so you should see markets expecting an even more hawkish Fed,” said James Rossiter, head of global macro strategy at TD Securities.

“On the other hand, you have the flight-to-safety, which should push bond yields lower.”

Germany’s 10-year bond yield touched its lowest level since early March at around 2.42%, before also moving higher.

Daiwa’s Scicluna said a further push higher in oil prices could dampen expectations for central bank rate cuts.

“The ultimate response in bond markets to geopolitics is going to depend on how sharp the rise in energy prices is going to be,” he said.

Some traders were attracted to the dollar as a haven, with the dollar index up 0.8% to 98.50, retracing most of Thursday’s sizable decline.

The Swiss franc briefly touched its strongest level against the dollar since April 21, before trading 0.5% lower at around 0.8144 per dollar.

Fellow safe haven the Japanese yen fell 0.6% to 144.33 per dollar, giving up earlier gains of 0.3%.

The euro was down 0.8% at $1.15, after rising on Thursday to the highest since October 2021.

“Traders are now on edge over the prospects of a full-blown Middle East conflict,” said Matt Simpson, a senior market analyst at City Index.

“That will keep uncertainty high and volatility elevated.”

Türkiye’s central bank announced on Friday that it had renewed its bilateral currency swap agreement with the People’s Bank of China, updating the terms to reflect current exchange rates between the Turkish lira and the Chinese yuan.

The agreement was signed by the Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan and People’s Bank of China Governor Pan Gongsheng, said an official statement.

The revised agreement allows for a maximum notional value of TL 189 billion or 35 billion Chinese yuan in local currency swaps between the two institutions, the statement said.

The agreement, first signed in 2019 and expanded in 2021, will remain valid for three years and may be extended upon mutual agreement, the CBRT said.

Currency swap lines are used by central banks to facilitate bilateral trade, enhance financial cooperation and provide liquidity support in local currencies.

The update aligns with efforts by both countries to promote non-dollar-denominated trade and reduce exposure to external currency volatility.

The CBRT said the arrangement is designed to promote bilateral trade through a swap-financed trade settlement facility and financial cooperation between the two countries.

“The two sides expect that this arrangement will further strengthen collaboration between the two central banks,” it noted.

In a seperate statement, the Turkish central bank also announced that it had signed a memorandum of understanding on establishing a renminbi (yuan) clearing arrangements which would help facilitate bilateral trade and investment.

The MoU was also signed by Karahan and Pan, the statement said.

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Türkiye’s economic program is yielding results within the general framework Ankara had envisioned and has “overcome two major shocks,” Treasury and Finance Minister Mehmet Şimşek said Thursday, stressing that inflation would continue to fall.

The minister, speaking to private broadcaster NTV, reiterated the goal of reducing inflation to single digits.

“There is significant progress there: Inflation is falling and will continue to fall,” Şimşek said in response to a question about how he sees the results of the program that has been implemented for nearly two years.

Annual inflation in Türkiye slowed down to 35.4% in May, its lowest since late 2021 and is less than half the level that it reached a year earlier, according to the official data.

Stating that another important target is a sustainable current account deficit, Şimşek said that they foresee a transition to a current account surplus in the long term. The current account deficit has been below 1% of national income for a long time, according to the minister.

Moreover, he touched upon the FX-protected accounts, the so-called KKM scheme, recalling that exit from it is also another significant goal.

Şimşek drew attention to the fact that the volume of KKM accounts has dropped below $15 billion (TL 590 billion) and noted that they will “probably end this practice soon.”

The Turkish central bank, in its yearly road map for 2025, said it aimed to end the foreign exchange-protected Turkish lira deposit scheme, which has weighed on the budget, this year.

The authorities began to scale back the KKM scheme in August of 2023, following a general shift to more conventional macroeconomic policy and since then, the volumes of these accounts have been declining.

“When you look at the reserves, there is an increase of over $90 billion in net reserves compared to the end of May 2023. There is also an increase of $55 billion-$60 billion in gross (reserves). Therefore, the program is yielding results within the framework foreseen,” the minister further said.

“Inflation is declining, and the budget deficit is decreasing. The current deficit has decreased and is at a sustainable point. We have reduced some risks … We have increased the resilience of the economy and made it resistant to external and domestic shocks,” he added.

Moreover, he said that the program “has overcome two major shocks.”

Program ‘tested’

“This program has overcome two very important shocks, initially domestic and later external, in March and April and has proven its credibility,” he stated.

“In fact, this program has been tested and there is a clear success,” he added.

“A program that has managed to withstand two major shocks back-to-back means that it has strengthened Türkiye’s economic structure and increased its resilience,” according to the minister.

He went on to say that there were exits amid turbulence, but underlined that a significant portion of those have come back.

The Central Bank of the Republic of Türkiye (CBRT) has indeed bought more foreign currency in recent weeks after declines in March and April.

Brief market turmoil in March following the detention and jailing of Istanbul Mayor Ekrem Imamoğlu amid a graft probe and growing protectionist measures prompted a policy pivot by the central bank, which hiked interest rates in April.

However, amid a larger-than-expected decline in annual inflation, markets are now eagerly awaiting the bank’s next committee meeting set for upcoming Thursday to see the future of the policy path.

Pointing out that country risk premiums (CDS) are falling, reserves are increasing, and the exit from the KKM continues, Şimşek reiterated that the program has proven itself and “has not gone off the rails.”

Furthermore, elaborating on inflation, he maintained that stickiness in services inflation is preventing further improvement in headline inflation, which he said, without it, could be below 30%.

“There has been a 40-point decrease in inflation in the last year. Goods inflation fell to 28.7% as of May. In fact, inflation in basic goods has fallen to 20%. One of the main factors that keeps inflation high, currently at 35.4%, is services,” Şimşek said.

“We were saying last year at this time that we were on the verge of a permanent decline in inflation. Now we are in it,” he also said, adding that the downward trend would continue.

Underlining that they expect inflation to end the year in the 20s, Şimşek recalled the central bank’s range between 19% and 29%.

“We will be within the target range. We sincerely believe in this,” he said.

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Argentina’s monthly inflation dropped to 1.5% in May, its lowest level in five years, a positive sign for President Javier Milei’s aggressive austerity campaign aimed at reining in runaway prices.

Annual inflation came in at 43.5% in May, the INDEC statistics agency reported Thursday, down from 211% at the end of 2023 but still one of the highest rates in the world.

The monthly rate was down from 2.8% in April.

Milei, a self-declared “anarcho-capitalist,” came to power in December 2023, wielding a chainsaw as a symbol of his plan to restore fiscal discipline and rein in inflation.

Last year, Argentina recorded its first budget surplus in a decade thanks to austerity cuts, but the collateral damage was a loss of purchasing power, jobs, and consumer spending.

Milei’s government hailed the May figure, which it attributed to a “successful orthodox stabilization plan” that included a recent loosening of exchange controls.

The INDEC said May monthly price rises were boosted mainly by telephone and internet costs (up 4%), restaurants and hotels (3%) and health expenses (2.7%).

The lowest increase was for transport (0.4%), followed by food and non-alcoholic beverages (0.5 %).

The positive numbers will do little to quell the anger of Argentines over their loss in purchasing power, with wages having remained stagnant over many months of high inflation.

“Prices are not dropping; they are rising,” Cristian Rodriguez, a 45-year-old logistics employee, told Agence France-Presse (AFP).

“Everything edible is going up,” he added.

In April, Argentina received $12 billion as the first disbursement of an International Monetary Fund (IMF) loan worth $20 billion, marking a strong vote of confidence in Milei’s economic program.

When the loan deal was announced, the IMF said it was built on “the authorities’ impressive early progress in stabilizing the economy, underpinned by a strong fiscal anchor, that is delivering rapid disinflation and a recovery in activity and social indicators.”

Success in curbing prices is the result of an austerity program that entailed firing tens of thousands of public sector workers, halving the number of government ministries and vetoing inflation-aligned pension increases.

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The head of one of the top business bodies in the country called on Thursday for development and economic revival amid the “terror-free Türkiye” initiative, recalling substantial losses that occurred in a decades-long campaign of the PKK terrorist organization.

“This newly opened door is a light of hope not only for Türkiye but also for Iraq, Syria and all our neighboring geographies,” said Burhan Özdemir, the head of the Independent Industrialists and Businessmen’s Association (MÜSIAD).

Speaking at the event in southeastern Diyarbakır province, which in the past was one of the regions that suffered from terror, Özdemir called on business organizations and civil society to be a part of the initiative.

Türkiye has been battling the PKK, listed as a terrorist organization by Türkiye, the U.S. and the European Union for four decades.

The initiative for a terror-free Türkiye was launched by government ally Devlet Bahçeli, head of the Nationalist Movement Party (MHP), who called on the PKK’s jailed leader Abdullah Öcalan to appeal to the PKK to lay down arms last year.

Earlier this year, the PKK announced through a declaration a formal dissolution and termination of its armed campaign, which is seen not only as a historical turning point in the political history of Türkiye but also as a significant economic opportunity. The officials have said that the peace dividend of the disbandment would be huge in terms of channeling resources to more productive areas for development and progress.

This view was echoed by Özdemir, who, during the event dubbed “Terror-Free Türkiye Gathering,” said that the “direct and indirect cost our country has borne in this struggle exceeds $2 trillion.”

“This figure is not a simple economic cost – it means the wealth that could have emerged from these fertile lands has been stolen from the tables not only of the people of this region but of the entire nation,” he noted.

“Today, our country’s gross domestic product (GDP) could have exceeded $3 trillion; our per capita income could have risen above $30,000,” he maintained.

He also pointed out to relatively low contribution of the region to total national income despite its vast agricultural riches and potential, in addition to the young population.

“It is time to use this vast resource not for defense against terror, but for an offensive in development. This newly opened door is a light of hope not only for Türkiye but also for Iraq, Syria, and all our neighboring geographies,” he furthered.

“At this historic turning point, as MÜSIAD, we are taking on a responsibility and making a call from here to all of Türkiye: Especially to the umbrella organizations of our business world, and to all civil society organizations, trade unions and chambers – let us not be mere spectators of the ‘terror-free Türkiye’ vision. Let us become its architects, its agents of revival,” he added.

“Let us shoulder this historic responsibility together,” Özdemir said.

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