Nomura strategists report that the European Central Bank (ECB) is expected to raise its deposit rate by 25 basis points to 2.50% in September, despite ongoing geopolitical tensions stemming from the Iran war [1]. The analysts note that the euro area’s Gross Domestic Product (GDP), excluding Ireland, has demonstrated resilience, growing by 0.3% quarter-on-quarter in each quarter of the first half of 2026, even as the conflict persists [1].
Inflation in the euro area, as measured by the Harmonised Indices of Consumer Prices (HICP), is forecasted by Nomura to remain steady at 2.8%. This aligns with market consensus, although Nomura’s forecast for Italy is slightly lower than market expectations [1]. The strategists emphasize that the ECB’s decision to hike rates in September is largely attributed to the initial shock of the Iran war and has been reinforced by a re-escalation of the conflict since the beginning of July [1].
Recent communications from ECB officials have signaled a strong likelihood of the September rate hike, regardless of whether the re-escalation resolves quickly or if there are no second-round inflation effects [1]. Looking beyond September, Nomura highlights that the future trajectory of ECB monetary policy will depend on the duration and severity of the Iran war [1].
CONCLUSION
Nomura expects the ECB to proceed with a 25bp rate hike in September, citing economic resilience and inflation stability despite the Iran war. The outlook for further policy moves will hinge on how long and severe the conflict remains. Market participants should monitor developments in the Iran war for future ECB policy signals.