Globally, conflict in the Middle East marked further escalation, while locally, the SARB governor noted that risks to the inflation outlook are assessed to be to the upside.
International Market Developments
The conflict in the Middle East saw a further escalation of hostilities alongside intensified diplomatic efforts, underscoring the conflict’s growing regional and global implications.
Israeli forces launched renewed airstrikes on military and energy-related infrastructure in Tehran and other parts of Iran. Iran responded with multiple waves of missile attacks targeting Israel. The conflict continued to disrupt critical energy infrastructure and transport routes, with the Strait of Hormuz effectively constrained and attacks reported on facilities in the Gulf. While he indicated that the US is in serious discussions with Iran, President Trump repeated threats to destroy Iranian energy assets if the Strait of Hormuz isn’t reopened soon.
US President Trump announced a further delay (10 days) of planned strikes on Iran’s energy infrastructure, pushing the deadline to early April. The US claimed that negotiations via intermediaries were progressing. However, Tehran rejected a US-backed ceasefire proposal, with Iranian officials saying that the plan served US and Israeli interests and failed to address Iran’s core demands, including security guarantees and recognition of its sovereignty over the Strait of Hormuz.
International concern over energy and shipping disruptions intensified. Iran moved to formalise tighter control over traffic through the Strait of Hormuz, raising fears of prolonged supply disruptions. Oil prices remained elevated amid these risks.
Fed Vice Chair for Supervision Michelle Bowman reiterated her support for three interest rate cuts in 2026. She cited expectations of continued strong economic growth while closely monitoring the potential impact of the war in Iran. Governor Christopher Waller expressed caution regarding the inflationary effects of rising oil prices driven by the conflict. He stated that the Fed does not need to raise interest rates at this stage, as inflation is expected to ease in the second half of the year.
Local Market Developments
Locally, the MPC unanimously decided to keep the repo rate unchanged, at 6.75%. The bank expects CPI inflation to average 3.7% (from 3.3% previously) in 2026, while the CPI forecast for 2027 is at 3.3% (from 3.2%). The expected CPI in 2028 remained unchanged at 3.0%. Higher energy prices due to the war are expected raise inflation in the near term.
The SARB expects headline inflation to soon accelerate to around 4%, with fuel inflation over 18% in the second quarter. The governor noted that the risks to the inflation outlook are assessed to be to the upside.