Nomura analyst Andrzej Szczepaniak argues that March Euro area inflation will not significantly alter the ECB’s near-term policy stance. They expect policy rates to stay unchanged through Q4 2027, with the Iran war and its impact on Brent crude and energy prices now the key driver of ECB decisions.
War and energy dominate ECB outlook
“We believe March HICP inflation alone will do little to affect the ECB’s near-term policy path. A marked jump in March HICP inflation is widely expected due to the rise in fuel prices as a result of the rally in Brent crude oil prices following the start of the Iran war.”
“In our baseline, we expect the ECB to leave rates unchanged through Q4 2027. However, our ECB forecast is based on the assumption that events in the Middle East 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.”
“ECBspeak has, for the most part, maintained its hawkish bias, with a number of ECB members suggesting April is live. Ultimately, though, the ECB’s eventual decision on rates remains a question on the intensity and longevity of the Iran war, and the resulting impact on crude oil and natural gas prices.”
“We believe the ECB will want to retain all optionality ahead of the April meeting, hence why ECBspeak is yet to meaningfully push back against an April rate hike. That said, as per the usual Bloomberg and Reuters “sources stories” that appeared following the ECB’s March meeting, we believe an April rate hike would only become a meaningful risk should the Iran war sufficiently intensify relative to the ECB’s March meeting.”
