BIS Cautions Fed and Peers Against Rapid Iran War Rate Hikes

The Bank for International Settlements (BIS) said Monday (March 16) that central banks should not react too quickly to the spike in global energy prices caused by the conflict with Iran, because the increase could be temporary, Reuters reported Monday.

“If it’s a supply shock, and certainly if it’s a temporary one, these are the textbook examples where you should look through and not react with monetary policy,” BIS Economic Advisor Hyun Song Shin told reporters Monday, according to the report.

Shin made these comments at the beginning of a week in which the central banks of the United States, the Eurozone, the United Kingdom and Japan are all set to meet for the first time since the beginning of the conflict, the report said.

Financial markets have been anticipating that central banks will raise interest rates due to the conflict, per the report.

“It’s kind of a knee-jerk reaction,” Shin said, noting that key inflation gauges have not moved as much as energy prices, according to the report.

Bloomberg also reported on Shin’s comments Monday, noting that he added that if the Iran conflict lasts longer or expands wider than expected, it could lead to a spike in interest rates and other adjustments in financial conditions.

“A spike in interest rates could put pressure on rich asset price valuations and rising financial costs for governments and the need to issue more debt could undermine fiscal sustainability,” Shin said, per the report.

PYMNTS reported Monday that geopolitical risks related to the war in Iran have already reshaped global trade patterns around air freight and shipping, directly impacting energy supply chains as well as other critical high-value goods like electronics and pharmaceuticals.

The conflict has reduced sea traffic through the Strait of Hormuz to a near stand-still and has disrupted aviation corridors over the Middle East.

Security experts have also warned that Iranian cyberattacks could target critical infrastructure such as financial services, energy and healthcare.

Iran is known to have an arsenal of tools for carrying out wiper attacks that destroy data. The country launched a successful wiper attack in 2012 that impacted 30,000 workstations at oil company Saudi Aramco.