The financial services group now anticipates a series of 25 basis point reductions in June, September, and December of this year, followed by similar cuts in March, June, and September of the following year.
Nomura’s decision to alter its ECB rate cut forecast is based on several economic indicators. The labor market and wages have shown resilience, and services inflation remains persistent.
Moreover, economic growth is on an upswing, and the ECB’s rhetoric has recently become more hawkish. These factors have led Nomura to expect a more gradual approach to rate cuts by the ECB.
The firm maintains its terminal rate forecast at 2.50%, indicating that it still expects the ECB to lower rates to the upper range of what it considers neutral. This revision includes the addition of a rate cut in September of the following year to align with this terminal rate view.
Nomura’s analysis indicates that with stronger economic activity data, robust demand, an encouraging labor market, higher-than-anticipated wage growth, and persistent services inflation, the ECB is likely to adopt a more measured pace of rate reductions to preserve a degree of monetary restrictiveness.
Furthermore, Nomura noted that even traditionally dovish members of the ECB Governing Council are advocating for fewer rate cuts this year, supporting a slower pace of easing than initially anticipated.
While the ECB’s actions remain data-dependent and could shift to more aggressive cuts if economic conditions deteriorate, Nomura believes that a gradual pace of three cuts this year is currently the most probable scenario.
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