Danish central bank cuts deposit rate further

Denmark`s central bank cut its deposit interest rate Thursday for the second time in a week to maintain its currency peg against the euro.

Copenhagen: Denmark`s central bank cut its deposit interest rate Thursday for the second time in a week to maintain its currency peg against the euro.

Nationalbanken cut the deposit rate by 0.15 percentage points to -0.50 percent but left its lending rate unchanged at 0.05 percent.

Analysts have speculated over the possibility that Denmark could abandon its policy of shadowing the euro in the wake of the turbulence caused by the ECB`s aggressive monetary policy and Switzerland removing its cap of 1.20 francs to the European single currency.

"Before the interest rate reduction the central bank has most likely sold kroner for a considerable amount in the foreign exchange market," Sydbank analyst Peter Bojsen Jakobsen wrote in a note to investors.

Although the current situation "is historic", the bank was merely following "its normal response pattern" when the krone is strong and the currency peg remains an essential part of Denmark`s economic policy, he added.

The central bank could end up reducing the rate further, Danske Bank economist Steen Bocian wrote on Twitter.

On January 19 the deposit rate, which was cut to below zero in September for the first time since 2012, was reduced to -0.2 percent from -0.05 percent. Three days later it was lowered by another 0.15 percentage points.

The deposit rate is the rate at which commercial banks are paid, or in this case have to pay, to place funds at the central bank.

Since the creation of the euro in 1999, the krone has been pegged to the currency through an agreement known as the European Exchange Rate Mechanism (ERM II), under which the Danish currency can move only 2.25 percent up or down from a fixed rate of about 7.46 krone per euro.

The policy allowed the country to enjoy the benefits of a stable exchange rate with the currency of its main trading partner Germany, without entering the Economic and Monetary Union which the Danes rejected in a referendum on the Maastricht Treaty in 1992.

By continuing to use the site, you agree to the use of cookies. You can find out more by clicking this link

Close