ECB Rate Outlook
It also expects the ECB to stay on hold in April. Nomura says the ECB may still point to inflation stabilising around its target by the end of its forecast horizon in Q4 2028. Nomura expects the ECB to want proof of persistent inflation or higher inflation expectations before raising rates. It puts June as the earliest feasible date for a rise, assuming the conflict does not worsen beyond its recent peak. If the ECB does raise rates in response to the conflict, Nomura expects two increases. The article notes it was produced with help from an AI tool and reviewed by an editor. With the ECB meeting just a week away on March 19, we are not expecting a change to the 2.00% deposit rate. Last week’s escalation in the Strait of Hormuz has sent shockwaves through energy markets, but the central bank will likely want to assess the real impact first. Brent crude futures settling above $95/barrel yesterday for the first time since late 2025 will certainly be on their minds.June Meeting Focus
We anticipate President Lagarde will sound dovish on the immediate outlook, stressing that inflation should stabilize by 2028. However, she will also be keen to avoid a repeat of the 2022 energy crisis, a hawkish signal that implies a readiness to act later. This mixed messaging suggests traders should prepare for a spike in short-term rate volatility. The real action for derivatives pricing is shifting towards the June meeting, which is now the first credible opportunity for a rate hike. We are seeing this reflected in the market already, as the 5-year/5-year inflation swap rate has ticked up to 2.40% this week. Any upcoming inflation data showing persistent price pressures will accelerate the pricing of a summer rate increase. Consequently, traders should consider positioning for higher rates in the second quarter, potentially through forward rate agreements or receiving fixed on short-dated swaps. Given the uncertainty, buying options that protect against a sharp rate rise, such as interest rate caps or payer swaptions, could be a prudent strategy. This is a very different environment than the stable rate outlook we had at the end of 2025. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
