Nomura analysts observe that markets are currently pricing in approximately three rate hikes for the European Central Bank (ECB) by December 2026, suggesting that market participants expect the ECB to respond to the energy shock from the Iran war in a manner similar to the Bank of England (BoE) [1]. However, Nomura highlights that there are fundamental differences between the energy shock caused by the Iran war and the 2022 European energy crisis, as well as between the Euro area and the UK [1].
Despite market expectations, Nomura's baseline scenario projects that ECB policy rates will remain unchanged through the fourth quarter of 2027 [1]. The analysts further note that if the spot price of Brent crude oil stays within the USD95-100 per barrel range by the ECB’s June meeting, they anticipate the ECB would raise rates by 25 basis points in June and again in September [1].
This analysis underscores a divergence between market pricing and Nomura's forecast, with the latter suggesting a more cautious approach by the ECB unless oil prices remain elevated. The scenario also implies that the ECB's response may differ from the BoE's, given the distinct economic contexts and energy shock characteristics [1].
CONCLUSION
Nomura's analysis suggests that while markets expect the ECB to hike rates in response to the Iran war energy shock, the bank may keep rates unchanged unless oil prices persist at high levels. The divergence between market pricing and Nomura's baseline highlights uncertainty around the ECB's policy trajectory, with potential rate hikes contingent on sustained energy price pressures.