Nomura strategists expect the European Central Bank to raise rates this week, taking the depo rate to 2.50%, and to keep it there for the foreseeable future. They see another hike after a 2025 cut back to neutral to counter Iran war-related inflation risks, and do not foresee ECB rate cuts in coming years. Euro area GDP growth has been close to potential, excluding volatile Ireland, at around 0.3% quarter-on-quarter since early 2024, which they think increases reasons to raise the depo rate. The ECB's estimate of nominal neutral rates has moved up from 1.25%-2.50% in H2 2023 to 1.75%-2.50% in 2026, while the Riksbank's estimate is 1.50%-3.00%, with similar midpoints aligning policy rates. Although the Riksbank, Norges Bank, and SNB face similar energy price shocks, different inflation backdrops and structural factors create different policy reactions.
