Nomura’s Andrzej Szczepaniak and team expect the European Central Bank (ECB) to begin a recalibration phase at the 11 June meeting, with a 25bp hike in the depo rate to 2.25%. They see the move as a signalling step to prevent inflation expectations from de-anchoring, while keeping guidance on quantitative tightening unchanged and projecting HICP inflation around target by Q4 2028.

Nomura sees signalling-focused rate hike

"We forecast a 25bp ECB depo rate hike to 2.25% at its 11 June meeting. We believe this rate hike should be interpreted as a signal to consumers and firms that the ECB will not allow inflation expectations to drift higher and de-anchor, and that the ECB will not allow inflation to go unchecked."

"Moreover, we believe the ECB’s view on the upper bound for neutral has likely shifted higher (it was previously 2.25% on the narrow band version), which means the ECB could feasibly justify a couple of rate hikes as a signal that it won’t leave inflation expectations or inflation unchecked without adversely affecting economic growth."

"Hence, we view the June meeting as the beginning of phase “recalibration”."

"We expect the decision to raise rates in June to be unanimous. Numerous ECB members have spoken about the likelihood of a June rate hike, ranging from hawkish members, such as Schnabel and Nagel, to dovish members, such as Stourneras."

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