Nomura analyst Andrzej Szczepaniak asserts that March Euro area inflation will not significantly alter the European Central Bank’s (ECB) near-term policy stance, with policy rates expected to remain unchanged through Q4 2027 [1]. The primary driver of ECB decisions is now the Iran war and its impact on Brent crude and energy prices, rather than inflation data alone [1]. A marked jump in March HICP inflation is widely anticipated due to rising fuel prices, which are attributed to the rally in Brent crude oil prices following the onset of the Iran war [1].
Nomura’s baseline forecast assumes that the energy price shock from the Iran war will have a limited meaningful impact on the euro area economy over the medium term [1]. However, if the spot price of Brent crude oil remains above $95 per barrel by the ECB's June meeting, Nomura expects the ECB would raise rates by 25 basis points in June and again in September [1].
ECB communication has largely maintained a hawkish bias, with several members suggesting that April is a 'live' meeting for potential rate action [1]. Nevertheless, the ECB’s eventual decision on rates is contingent on the intensity and longevity of the Iran war and its effect on crude oil and natural gas prices [1]. Nomura believes the ECB will retain all options ahead of the April meeting, and an April rate hike would only become a meaningful risk if the Iran war intensifies relative to the ECB’s March meeting [1].
CONCLUSION
Nomura sees the Iran war and its impact on energy prices as the key determinant of ECB policy, with rates likely to remain unchanged unless Brent crude stays above $95 per barrel. The ECB is expected to maintain flexibility ahead of its April meeting, with any rate hike dependent on further escalation in the Middle East. Market participants should closely monitor energy prices and geopolitical developments for clues to future ECB actions.