COPENHAGEN: As the policy makers try to flush out speculators still betting against krone’s peg to the euro, Denmark’s central bank may set a world record in negative interest rates ever.
The central bank will probably cut its benchmark deposit rate by a quarter of a percentage point to minus 1 percent today, according to Nordea Bank AB, Scandinavia’s largest lender. There’s even a chance Governor Lars Rohde might go as low as minus 1.25 percent to send a clear signal, Nordea said. Danske Bank A/S also predicts a 25 basis-point cut.
The move would follow record currency-market interventions. The central bank has dumped about $30 billion in kroner this year to weaken the currency and defend the peg, bringing its reserves to 35 percent of gross domestic product. Rohde said last week there’s no limit to how high reserves can grow or how low rates can go to prevent the “unthinkable” prospect that Denmark might lose its euro peg.
“The central bank really wants to stamp this out now.”
Jan Stoerup Nielsen, a senior analyst at Nordea Markets in Copenhagen, said by phone. “They may be ready to throw their heavy artillery at the market and that’s why I think a 50 basis-point rate cut is a possibility.”
The list of unprecedented events in Denmark’s currency and fixed-income markets has grown since last month, when Switzerland’s decision to abandon its ties to the euro fueled speculation Denmark may be next.
