By Callum Keown

A big week of central bank decisions has begun with a rate hike -- one linked to the inflationary impact of the Iran war.

The Reserve Bank of Australia raised interest rates by a quarter point early Tuesday in a narrow 5--4 vote, and events in the Middle East may have tipped the balance.

"The conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation. Short-term measures of inflation expectations have already risen," the RBA said in its decision statement.

As a result, the central bank judged there to be a material risk that inflation will remain above target for longer than previously thought.

The Federal Reserve will make its own decision Wednesday and is widely expected to hold rates. The same goes for the Bank of England and the European Central Bank on Thursday.

Markets aren't seriously entertaining the possibility of the Fed raising rates. Traders see just one rate cut by the end of the year as the most likely outcome, according to CME Group's FedWatch tool.

But Australia's move is a reminder that the war will very much factor into central bankers' thinking this week, and in the weeks ahead.

Write to Callum Keown at callum.keown@dowjones.com

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March 17, 2026 10:23 ET (14:23 GMT)

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