Nomura’s Euro area team anticipates that the European Central Bank (ECB) will raise its key interest rate by 25 basis points to 2.50% at the upcoming 10 September meeting. This expectation is based on higher Harmonised Index of Consumer Prices (HICP) inflation, which is attributed to the Iran war, and the continued resilience of the euro area economy [1]. The report highlights that hawkish statements from ECB officials, including Radev, reinforce the likelihood of further tightening. Radev noted that the neutral rate is 'probably around 2.50%' and suggested the ECB may need to move rates into restrictive territory [1].
Nomura points out that market pricing for ECB policy through December 2026 is being heavily influenced by Brent crude oil prices, with ongoing attention to US-Iran developments. The analysis also underscores the risk of an additional rate hike in December if Dutch TTF natural gas prices increase further. The pass-through of Brent crude oil price changes to HICP inflation is described as largely contemporaneous, mainly affecting the vehicle fuel component. In contrast, the impact of Dutch TTF natural gas prices on inflation is more gradual and persistent, potentially leading to broader inflationary pressures [1].
Overall, Nomura maintains its view of a 25 basis point hike in September, while warning of clear risks for further tightening should energy prices remain elevated or rise further. The interplay between energy markets and ECB policy remains a key focus for market participants [1].
CONCLUSION
Nomura expects the ECB to raise rates by 25 basis points in September, citing persistent inflation risks driven by energy prices and resilient economic growth. Hawkish ECB commentary and the potential for further hikes, especially if energy prices rise, suggest ongoing market sensitivity to inflation and central bank policy. Market participants are advised to closely monitor energy price developments and ECB communications.