US-Iran war forces global central banks to pause April easing cycle

The United States-Iran war has forced central banks across major economies to pause or suspend their monetary easing cycles in April, as the conflict injects fresh inflationary pressure through surging oil prices, supply chain disruption, and elevated geopolitical risk premiums. The synchronised pause marks a significant setback for a global monetary loosening trend that had been building through late 2025 and early 2026.

Central banks in Europe, Asia, and emerging markets had been moving toward interest rate reductions as inflation appeared to converge toward target levels and economic growth showed signs of softening. The outbreak of the US-Iran conflict reversed those conditions by pushing energy prices sharply higher, driving up input costs across manufacturing and logistics, and creating uncertainty that central bank governors uniformly cited as incompatible with near-term rate cuts.

The Federal Reserve, European Central Bank, and several Asian monetary authorities signalled in April communications that the conflict had materially altered their near-term policy outlook. Emerging market central banks, including those in South Asia, face a compounded challenge as both energy costs and currency pressures mount simultaneously due to dollar safe-haven flows.

For Pakistan's State Bank, the development complicates the monetary easing trajectory that had been anticipated for the second half of 2026. Sustained high energy costs and imported inflation could delay rate reductions, keeping borrowing costs elevated for businesses and households at a time when the domestic economy requires accommodative monetary conditions to sustain recovery momentum.