September could become a decisive month for interest rates as the world’s biggest central banks prepare their next moves. Middle East tensions have pushed energy costs higher, complicating earlier hopes that cooling inflation would allow policymakers to relax. So, will rates stay put, or could another round of increases be coming?
Western central banks diverge
Markets are watching the US Federal Reserve closely as softer inflation and a weaker labour market reduce expectations for an immediate hike. Investors see a 63% chance that rates will remain unchanged in September, although another increase before year-end remains possible. Canada could follow a similar path after holding its policy rate at 2.25% for six straight meetings. Europe may move differently as higher energy costs push up consumer prices.
Eurozone inflation reached 2.9% in July, up from 2% a year earlier, while core inflation stood at 2.5%. The European Central Bank is widely expected to respond with a 25-basis-point hike on September 10. Britain may stay patient despite inflation hitting a four-month high of 2.9%. The Bank of England is expected to hold rates, though Middle East tensions and drought-related food risks could add further price pressure.
Asia faces pressure
Türkiye will also announce its decision on September 10 after keeping the one-week repo rate at 37% in July. Although domestic demand has eased, renewed increases in energy prices remain a concern for policymakers.
Attention then shifts to Japan on September 18, where a weak yen has added another layer of pressure. After raising its policy rate to 1% in June and holding it there the following month, the Bank of Japan is expected to deliver another 25-basis-point increase.
Australia, by contrast, is expected to keep rates unchanged. With inflation, energy costs and geopolitical risks pulling policymakers in different directions, September’s decisions could offer an important clue about where global borrowing costs head next.
