ECB: Data-dependent path as Iran shock unfolds – Nomura

Nomura analysts expect the European Central Bank (ECB) to keep the depo rate at 2.00% at the 30 April meeting and to maintain this level through Q4 2027. They stress that policy will stay data-dependent, with particular focus on Brent Oil prices, inflation expectations and wage dynamics following the Iran war shock.

Nomura sees unchanged rates but hawkish risks

"We expect the ECB to leave the depo rate unchanged at 2.00% at its 30 April meeting, and we expect this decision to be unanimous."

"We believe the ECB will want to avoid a knee-jerk reaction to the Iran war and instead wait to assess the evolution of the war and how it has affected economic data. In particular, we believe the ECB will want to assess how the Iran war has affected consumer inflation expectations and firms’ wage expectations over the medium term."

"In our baseline, we expect the ECB to leave rates unchanged through Q4 2027. However, our ECB forecast is based on the assumption that the Middle East conflict will unfold in such a way that the energy price shock from the war in Iran will have a limited meaningful impact on the euro area economy over the medium term."

"We believe that, if the spot price of Brent crude oil were to remain above $95/bbl by the ECB's June meeting, the ECB would raise rates by 25bp in June and then again in September."

"Ultimately, for the ECB to raise rates, we believe the Governing Council will want to see the shock is causing persistently higher inflation, as in 2022, or that the shock meaningfully raises inflation expectations. In order to assess this, we believe sufficient time will be needed, and therefore June is likely to be the first meeting at which the ECB could raise rates if it decided to in response to the Iran war."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)