Nomura Tweak ECB View, Lower But Slower

Nomura now expect the ECB to cut rates by 25bp at each of the next three meetings, before “slowing the pace of cuts from once per meeting to once per quarter, i.e. subsequently cutting again in December this year, and March and June next year.”

• That means they now expect 100bp of cuts this year (vs. 125bp previously) and 50bp of cuts next year (vs. 0 previously).
• Beyond June they suggest that “a July cut is likely in response to political wrangling, rates still being restrictive at 3.75% and the effect of a delayed Fed cutting cycle on ECB inflation forecasts.”
• They also believe that “the pace of cuts is likely to slow after September to maintain some level of restriction as growth accelerates and so the ECB can feel its way back to neutral.”
• ECB-dated OIS currently prices ~75bp of cuts through year-end. We will provide the usual pricing update in our regular morning EUR STIR bullet.