The ECB’s recent decision to leave interest rates on hold, and its associated communications, confirm that its tightening cycle is now almost certainly over. But despite inflation having fallen sharply, we believe the strength of the labour market, including persistent wage growth, will keep the Bank from cutting rates until the second half of next year – even if the economy tips into recession in the meantime. Elsewhere, tighter monetary policy is weighing heavily on the Swedish economy, which we think will prompt the Riksbank to start cutting interest rates sooner than the ECB. And the low level of inflation in Switzerland suggests the SNB will also turn to interest rate cuts in the first half of 2024. The Norges Bank is likely to keep rates at their peak until the middle of next year.
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