Economic growth in the euro-zone slowed in Q2 and timelier data suggest that it weakened further in Q3. That, together with the fall in headline inflation below 2% in September, should prompt another 25bp cut by the ECB at its October meeting. With the economy likely to remain weak and inflation low throughout next year, we expect the Bank to cut at each meeting until the deposit rate reaches 2.5% in March.
Elsewhere, we think that the Riksbank will reduce its policy rate from 3.25% currently to 2.5% early next year, and that the SNB will cut two more times in this cycle taking its policy rate to 0.5% in March. Norges Bank will probably hold fire until December.
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