ECB policymakers still insist that monetary policy will remain tight throughout the first half of the year, if not longer. But we think that weakness in economic activity and lower inflation will prompt them to start cutting in April. And in contrast to the consensus view, we expect growth to remain subdued over the rest of the year, in part due to fiscal tightening. Elsewhere, we suspect that against the backdrop of continued low inflation, the SNB will start loosening policy in March. The Riksbank will respond to the deep recession in Sweden by cutting rates around the same time. Norway’s economy is holding up better but inflation is likely to drop sharply this year, causing Norges Bank to slash rates faster than its forecasts imply.
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