Pre-MPC Analysis-July 2026
The global economic outlook has weakened further since the May MPC meeting as geopolitical tensions continue to weigh on growth prospects. In its July 2026 World Economic Outlook (WEO) Update, the IMF revised global growth downward to 3.0% in 2026 from 3.1% projected in April, while maintaining its 2027 forecast at 3.4%. The Fund attributed the softer outlook primarily to the economic effects of the Middle East conflict, although stronger technology-driven investment, particularly in artificial intelligence, continues to provide some support to global activity.
The IMF also expects global headline inflation to increase from 4.1% in 2025 to 4.7% in 2026 before moderating to 3.9% in 2027, suggesting that the global disinflation process has stalled. While the direct transmission of the conflict through commodity prices and financial conditions has so far been more limited than initially feared, the Fund warned that renewed escalation could trigger higher energy prices, disrupt supply chains and tighten global financial conditions.
Monetary policy across major economies remained largely cautious. Since the May MPC meeting, 137 central banks have held monetary policy meetings globally. Of these, 110 (80.3%) maintained policy rates, 16 (11.7%) increased rates, while 11 (8.0%) lowered rates, underscoring the prevailing wait-and-see approach among policymakers. Among major central banks, the U.S. Federal Reserve, Bank of England, and South African Reserve Bank kept policy rates unchanged, while the European Central Bank and the Bank of Japan raised their policy rates in response to persistent domestic inflationary pressures.
Overall, global monetary conditions remain relatively tight as central banks continue to balance slowing growth against lingering inflation risks and heightened geopolitical uncertainty. This environment is expected to keep financing conditions restrictive and sustain investors’ preference for safe-haven assets.
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