The European Central Bank raised rates for the second time this year after higher energy prices pushed euro-area inflation further above its target. The increase came as the energy shock spread across major economies, with attacks forcing Saudi Arabia to close the principal pipeline used to bypass the Strait of Hormuz. US consumer and producer inflation also remained elevated, adding to uncertainty over the next round of central bank decisions.

The week also brought a potentially important step in European bank consolidation as UniCredit authorised the shares required for its Commerzbank offer. In Asia, China recorded another large trade surplus and directed financial institutions away from scale-driven expansion, while Malaysia attracted record foreign bond inflows and India’s foreign-exchange reserves reached an all-time high.

Read more on the week's key developments

1. ECB raises interest rates to 2.50% as euro-area inflation reaches 3.3%

The European Central Bank raised its three key interest rates by 25 basis points on 10 September. The deposit facility rate will rise to 2.50%, the main refinancing rate to 2.65% and the marginal lending facility rate to 2.90% from 16 September. Euro-area inflation reached 3.3% in August as energy prices increased 14.3% year on year. The ECB left its 2026 inflation forecast unchanged at 3% but raised its projections for 2027 and 2028 to 2.5% and 2.1%, respectively. It also raised its growth forecasts for 2026 and 2027 to 0.9% and 1.4%, reflecting stronger-than-expected economic activity.

ECB President Christine Lagarde said the unanimous increase was a “no-brainer” under each of the ECB’s energy-price scenarios, although policymakers did not discuss a future rate path. Corporate bank lending rates had already risen to 3.8% in June and July from 3.6% in May, while annual lending growth to companies accelerated to 4.4%. Higher asset yields may support bank income but increase refinancing and credit risks for borrowers. Wage growth has not yet responded materially to the energy shock, leaving its eventual transmission into services, wages and underlying inflation central to further rate decisions.

2. Saudi pipeline closure threatens 4-5 million barrels of daily oil flows

Saudi Arabia temporarily closed its East-West oil pipeline after drone attacks on 10 September damaged sites in the Riyadh and Madinah regions. Saudi authorities said the drones originated in Iraq. The pipeline transports crude from eastern Saudi Arabia to the Red Sea port of Yanbu and had been carrying about 4-5 million barrels per day after the effective closure of the Strait of Hormuz following the outbreak of the US-Iran war. Brent crude rose above $100 per barrel following the attacks.

The pipeline is the main route allowing Saudi crude to avoid the Strait of Hormuz. Estimates for repairs range from several days to several weeks, while Saudi Arabia has not provided a timetable for restarting operations. A prolonged closure would constrain exports from a country whose oil supply had already fallen to around 6.2 million barrels per day in August, its lowest level in three decades. Further pressure on energy prices would add to inflation, borrower costs and credit risks for banks in energy-importing economies.

3. UniCredit authorises shares for Commerzbank takeover offer

UniCredit’s board exercised an existing shareholder mandate on 10 September to issue shares for its voluntary public exchange offer for the Commerzbank shares it does not already hold. UniCredit is offering 0.485 of its shares for each Commerzbank share tendered. Shareholders had authorised the capital increase in May with 99.55% support. Only 17.6% of Commerzbank shares were tendered by the end of the additional acceptance period in July, with completion remaining subject to regulatory approvals.

The transaction is one of Europe’s largest current cross-border bank-consolidation attempts and would combine major Italian and German banking franchises. UniCredit expects regulatory decisions between September and October. Germany has opposed aspects of the proposed takeover and is seeking protections for employment and Commerzbank’s German identity. Regulatory approval and Germany’s conditions on employment, governance and Commerzbank’s domestic presence remain the principal obstacles to completion.

4. BRICS backs local-currency payments and IMF quota reform

BRICS finance ministers and central bank governors adopted a joint statement in Mumbai on 10 September calling for emerging and developing economies to receive larger International Monetary Fund quotas. These quotas influence members’ financial contributions, voting power and normal access to IMF financing. Officials also agreed to continue examining connections between national cross-border payment and messaging systems and greater use of local currencies for trade and investment. The statement rejected a uniform model, leaving the work focused on interoperability instead of a single BRICS payment platform.

There is currently no bloc-wide BRICS payment network. China operates the Cross-Border Interbank Payment System for renminbi payments and Russia operates the System for Transfer of Financial Messages, while India and Brazil have built large domestic instant-payment networks through UPI and Pix. India and the UAE have established a bilateral local-currency settlement framework and agreed to link their payment and messaging systems. India’s UPI is also connected to Singapore’s PayNow. These initiatives were developed outside the BRICS framework and illustrate the bilateral connections that could eventually support wider interoperability. BRICS also called on the New Development Bank to expand local-currency financing and mobilise private capital.

5. China shifts financial sector toward balance-sheet quality and risk control

China issued its financial-sector plan for 2026 to 2030, making stronger supervision, financial-risk prevention and higher-quality development central priorities. It calls for risks at local small and medium-sized financial institutions to be addressed and directs financial institutions to place greater emphasis on quality and performance instead of rapid balance-sheet expansion. The plan also seeks more financing for technology, green development, small businesses, pensions and digital finance.

The shift reflects the pressure on banks to support government priorities while preserving profitability and capital. Commercial banks’ average net interest margin remains close to a historical low at 1.41%, limiting their ability to build capital through earnings. China is separately arranging RMB 360 billion ($53.6 billion) of capital for eight large state-owned banks and insurers. The plan places greater weight on asset quality, risk control and sustainable returns, particularly among smaller local institutions.

6. US consumer inflation holds at 3.4% as producer prices rise 5.4%

The US consumer price index increased 0.4% in August and 3.4% year on year, unchanged from July’s annual rate, according to the Bureau of Labor Statistics. Core consumer inflation eased to 2.4% from 2.5%. Producer prices increased 0.4% during the month and 5.4% year on year, accelerating from 4.8% in July. Core producer prices rose 4.6% from a year earlier.

The figures show that consumer inflation remains above target while businesses continue to face stronger upstream cost pressures. Higher energy and producer prices could feed into consumer prices if companies pass on more of their costs. The data complicate the Federal Reserve’s policy decision on 16 September by combining persistent inflation with signs of weaker labour-market conditions.

7. China’s exports rise 25% as trade surplus reaches $119.1 billion

China’s exports increased 25% year on year in August, accelerating from 23.9% in July, while imports rose 28.2%, data from the General Administration of Customs showed. The figures are measured in US-dollar terms. The monthly trade surplus widened to $119.1 billion from $112.5 billion in July. High-technology exports increased 42.9%, supported by semiconductors and automobiles. Exports to the US rose 34.4%, while shipments to Southeast Asia and Latin America increased 30.2% and 17.5%, respectively.

Export demand continues to support Chinese industrial activity while household consumption and property investment remain weak. Rapid growth in technology-related shipments also shows how manufacturing capacity is shifting toward higher-value sectors. For banks, the expansion supports demand for working capital, foreign exchange and supply-chain finance but increases exposure to tariffs and other measures aimed at reducing China’s trade surplus.

8. India’s foreign-exchange reserves jump to record $785.7 billion

India’s foreign-exchange reserves increased by a record $44.9 billion in the week ended 4 September to an all-time high of $785.7 billion, according to the Reserve Bank of India. Foreign-currency assets rose by $47.5 billion to $648.2 billion, partly offset by a $2.6 billion decline in gold reserves. The total has increased for ten consecutive weeks and by almost $120 billion over that period.

The increase followed more than $136 billion of foreign-currency inflows under special swap facilities introduced to strengthen India’s external position. The reserves give the central bank greater capacity to manage currency volatility and external shocks. However, converting the inflows into INR created a large domestic liquidity surplus, prompting the Reserve Bank of India to withdraw more than INR 6.1 trillion ($64.1 billion) from the banking system through short-term operations.

9. RBI proposes 60-day limit for cyber-fraud debit holds

The Reserve Bank of India issued draft directions on 11 September establishing common procedures for temporary debit holds on accounts linked to suspected money-mule activity and cyber-enabled fraud. Banks could apply a hold to transactions of INR 1,000 ($10.5) or more, preventing funds from leaving an account while allowing incoming payments. Customers would have 20 days to explain flagged transactions and holds would generally be limited to 60 days unless law-enforcement agencies or another competent authority directed otherwise. Comments are due by 2 October and the directions are proposed to take effect on 1 April 2027.

The proposal follows an August Supreme Court direction for the regulator to establish a standard operating procedure. It would apply across commercial banks, small finance banks, payments banks, regional rural banks, local area banks and urban cooperative banks. The framework should make treatment more consistent when stolen funds pass through several institutions while giving customers clearer notification and review timelines. Banks will need to align transaction monitoring, case escalation and customer communication with the final rules.

10. Malaysia draws record $3.9 billion of foreign bond inflows

Foreign investors placed MYR 15.8 billion ($3.9 billion) into Malaysian government and corporate bonds in August, reversing a MYR 5.6 billion ($1.4 billion) outflow in July and marking the largest monthly inflow in Bank Negara Malaysia data extending back to 2016. The ringgit appreciated by more than 1% during the month. Malaysia’s overall capital market, including equities, recorded a net inflow of MYR 13.9 billion ($3.4 billion), its highest in 15 months. Foreign holdings of Malaysian debt securities increased to MYR 320.1 billion ($78.7 billion), raising their share of outstanding debt to 13.5% from 13% in July.

The scale of the reversal points to renewed foreign demand for ringgit-denominated debt following July’s outflow. Higher foreign participation broadens the investor base and could improve funding conditions for government and corporate issuers, although it also increases the sensitivity of domestic yields and the ringgit to shifts in global interest-rate expectations. Equity outflows partly offset the bond buying, which explains why the overall capital-market inflow was lower than the bond inflow.

What to watch

Hong Kong Five-Year Plan announcement (16 September), Federal Reserve policy decision (16 September), Bank of England MPC meeting (17 September), Bank of Japan policy meeting (18 September), People’s Bank of China loan prime rate fixing (21 September), Bank Indonesia and South African Reserve Bank policy meetings (23 September), Reserve Bank of Australia policy meeting (29 September), Reserve Bank of India MPC meeting (30 September)