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Central Banks · Energy Prices · Inflation · Monetary Policy
The Bank for International Settlements (BIS) urged global central banks, including the U.S. Federal Reserve and European Central Bank, not to rush monetary policy reactions to the recent 40% surge in oil prices and 60% leap in wholesale gas prices driven by the Iran crisis, advising them to "look through" temporary supply shocks.
This advice comes as financial markets have quickly repriced expectations, anticipating central bank action and halving expected Fed rate cuts to one, while fully pricing an ECB hike by July with an 85% chance of a second by year-end. Hyun Song Shin, BIS's top economic adviser, characterized this market reaction as "knee-jerk," emphasizing that central banks should only react if the conflict and energy price increases prove sustained, warning a prolonged crisis would amplify economic damage and impact asset prices and fiscal balances.
The BIS report also highlighted central banks' evolving communication strategies, moving towards scenario-based projections.
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