Under the energy shock, global central banks are restarting the tightening wave

FX168 Finance, September 17—— The overall trend of global central bank policy is the leading anchor for market liquidity and asset performance.

In September 2026, as Middle East geopolitical conflicts continue to escalate and the risk of shipping in the Red Sea soars, international oil prices have surged again, and global inflationary pressures have rebounded. Against this backdrop, G10 developed economy central banks have collectively ended their easing cycles and reignited tightening tendencies, shifting monetary policy from “watching for rate cuts” to “inflation-fighting and maintaining resilience.”

The central bank monetary policy cycle directly determines the liquidity conditions of core currencies such as USD, EUR, and JPY, serving as the top leading indicator for the movements of stocks, bonds, commodities, foreign exchange, and other investment classes.

Reserve Bank of Australia Rate: 4.35%, Tightening Cycle Continues

The Reserve Bank of Australia (RBA) has raised rates three times so far this year, completely erasing all rate cuts from 2025, and the current 4.35% is the highest policy rate among G10 economies.

Australia's July inflation data was much higher than expected, with sticky terminal prices highlighted, compounded by external pressure from energy prices, giving the central bank strong motivation for further tightening.

The RBA Deputy Governor made it clear that the necessity of another rate hike will be re-evaluated at the interest rate meeting at the end of September, and the market generally expects another rate hike at this meeting.

As an exporter of commodities, Australia’s inflation is significantly affected by the pass-through of energy and industrial product prices. The pace of further rate hikes will continue to tighten domestic liquidity, directly pressuring the AUD exchange rate and Australian equities.

Bank of England Rate: 3.75%, Inflation Risks Rise, Beware of Middle East Conflict Pushing Persistent Inflation

The Bank of England maintained its interest rate unchanged as expected at its September meeting, but the hawkish forces within the policy committee have continued to strengthen. Three members voted for a rate hike, the same as at the previous meeting, and divisions continue to exist.

The biggest hidden risk for UK inflation currently comes from the energy side, with Brent crude oil returning to $100/barrel. The UK energy regulator plans to raise the energy price cap again in October, and energy costs will continue to be passed on to consumers.

The Bank of England Governor Bailey issued a strong warning that if the Middle East conflicts continue to escalate, the central bank will be forced to further tighten monetary policy. The market is currently pricing in at least one more rate hike in the UK this year, with the possibility of a second hike. Movements of the GBP and UK government bonds will be highly dependent on subsequent inflation and geopolitical developments.

Federal Reserve (Fed): Rate Hikes Restarted, Hawkish Stance Exceeds Expectations, Market Tightening Expectations Far Surpass Official Guidance

The Federal Reserve raised rates by 25 basis points as expected in September, raising the policy rate range to 3.75%-4.00%, and also released clear signals for further rate hikes, breaking previous market expectations for easing.

This rate hike effectively responded to external doubts about the Fed’s independence, countered Trump’s demand for rate cuts, and reinforced its commitment to the inflation control target.

According to the Fed’s dot plot, the official forecast is for one more rate hike in 2026 and maintaining the rate or possibly one more hike in 2027. However, market sentiment is more aggressive, with investors pricing in more than one hike this year and a total of three by 2027.

As the core of global liquidity, the Fed’s continued tightening will drain global USD liquidity, push US Treasury yields higher, and suppress risk asset valuations worldwide.

Reserve Bank of New Zealand Rate: 2.75%, Consecutive Rate Hikes, Tightening Cycle Not Yet Over

The Reserve Bank of New Zealand (RBNZ) implemented a second consecutive rate hike in September, raising the rate to 2.75%, in line with market consensus expectations.

Compared to other economies, New Zealand’s economy demonstrates stronger resilience, and the latest economic growth data consistently exceeds expectations, supporting the central bank’s tightening policy.

However, the central bank also warned that external geopolitical risks and energy price volatility increase economic uncertainty, so the pace of future rate hikes will be more cautious.

The market generally expects New Zealand to hike again this year. The overall monetary policy remains hawkish, continuing to tighten the domestic credit environment.

European Central Bank (ECB) Hawkish Rate Hike Delivered, Energy Shock Drives Eurozone Inflation

The European Central Bank completed its second rate hike of the year in September, significantly turning more hawkish, and becoming one of the main forces behind this round of global tightening.

Affected by the Middle East situation, Eurozone energy prices soared 14% month-on-month in August, pushing the overall inflation rate up to 3.3%, far exceeding the 2% policy target.

The ECB made it clear that the energy shock from geopolitical conflicts will lengthen the duration of elevated inflation, with regional inflation set to remain above target in 2026–2027.

Market pricing suggests the Eurozone is highly likely to hike rates again this year, with the deposit rate expected to remain above 3% in 2027.

Under the dual pressure of energy price increases suppressing economic growth and pushing inflation higher, the ECB faces a “stagflationary tightening” dilemma, significantly increasing policy difficulty.

Bank of Canada on Hold, Rate Hike Expectations Warm Up, Trade Risks Disrupt Policy

The Bank of Canada left its interest rate unchanged in September, showing a clear policy shift.

Previously, the central bank saw inflation risk and economic downside risk as basically balanced; now, it explicitly warns of high inflation risk and expresses that it will hike multiple times if inflation remains stubbornly high.

Currently, the Canadian economy faces dual shocks: on the one hand, the labor market shows signs of cooling and economic growth is under pressure;

on the other, the US-Canada trade war continues to escalate, and higher external tariffs are increasing imported inflation.

The market overall projects Canada is likely to follow with a rate hike this year. Monetary policy will struggle to balance “stabilizing growth” with “fighting inflation”, and its policy uncertainty is notably higher than in previous years.

Bank of Japan About to End Negative Interest Rate Policy, Yen Liquidity at a Turning Point

The Bank of Japan will hold a key monetary policy meeting this week, and the market is betting unanimously on a rate hike to 1.25%—formally pushing monetary policy normalization.

Compared to previous expectations, the pace of Japanese rate hikes has accelerated significantly, and economists predict Japan’s rate will rise to 1.75% by Q2 2027.

The core impact of Japan’s policy shift is a restructuring of global liquidity: large institutions such as Japan’s pension funds hold massive overseas assets, and rising local yields will drive capital to flow back into Japan, shaking up global bond and currency market liquidity. The yen will also enter a phase of recovery.

Comprehensive Review: How the Central Bank Tightening Cycle Dominates Global Investment Flows

This synchronized global central bank tightening is driven not by economic overheating, but by imported inflation from geopolitical energy shocks—a typical case of “passive tightening.”

Unlike previous hikes during economic expansion, this tightening phase is compounded by growth pressures, and global markets are likely entering a “low growth, high rates, high volatility” macro environment.

In terms of liquidity transmission, the policy resonance among the seven central banks will directly compress the total amount of global broad liquidity: US Treasury yields rising at high levels will suppress valuation of global equity assets; commodities will experience structural divergence, with energy supported by geopolitics, and industrial goods suppressed by weak demand; non-USD currencies will develop independently based on local central bank hawkish-dovish dynamics, with high-yield currencies proving more resilient while low-yield, weaker currencies remain under pressure.

For investors, global central bank policy rhythms are the absolute leading indicator: going forward, it suffices to track the timing of rate hikes by the Fed, ECB, and BoJ, as well as inflation correction data, to anticipate global liquidity turning points, position early for trend opportunities in stocks, bonds, FX, and commodities, and avoid systemic risks during the tightening cycle.