Nomura analysts expect the ECB to keep the depo rate at 2.00% on 19 March and avoid a knee-jerk response to the Iran conflict. They see March HICP inflation jumping, but argue the Governing Council will wait for evidence of persistent inflation or de-anchored expectations, making June the earliest realistic date for potential rate hikes, possibly twice.

ECB seen on hold, June risk window

"We expect the ECB to leave the depo rate unchanged at 2.00% at its 19 March meeting. We believe the Bank will avoid a knee-jerk reaction in response to the Iran conflict and instead wait to assess the real economy impact and the pass-through to inflation expectations."

"We believe HICP inflation data for March 2026 will already show a strong impact from the Iran conflict and print 0.5-0.7pp higher than it otherwise would have. We raised our forecast for March 2026 by 0.6pp to 2.5% y-o-y in response to the conflict. That said, we do not expect the ECB to have a knee-jerk reaction in April, either."

"Mme Lagarde is likely to disappoint markets to the dovish side by leaning on the idea that HICP inflation will nonetheless stabilise around the ECB’s target by the end of the ECB forecast horizon (Q4 2028), even if near-term HICP inflation rises due to the conflict. That said, we expect Mme Lagarde to reiterate the ECB will not allow a repeat of the rise in HICP inflation during the 2022 European energy crisis, which markets may interpret hawkishly."

"For the ECB to raise rates, we believe the Governing Council will want to see the shock is causing persistent inflation, as in 2022, or that the shock meaningfully raises inflation expectations."

"As a result, we believe June is the earliest meeting that the ECB could feasibly raise rates, assuming the conflict does not deteriorate beyond the peak of what we have seen already. As we outlined previously, if the ECB raises rates in response to the Iran conflict, we believe it would likely do so twice."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)