DENMARK: Denmark’s Nationalbanken has cut short its deposit interest rate after the European Central Bank announced incentives to cope up with deflation in stagnant euro zone economy. The bank has cut the rate by 0.15 percentage points to -0.35 percent however leaving its lending rate unchanged.
This is in a move aimed at defending the Danish krone’s pegged exchange rate with the euro.
“The central bank is demonstrating that it is ready to set interest rates as low as is needed,” Nordea economist Helge Pedersen wrote on Twitter.
Pedersen echoed what his colleague Jan Storup Nielsen told The Local last week.
“There’s definitely a scenario where we can see the Danish interest rate going to a record low,” Nielsen, a Nordea analyst, said.
Analysts have speculated over the possibility of Denmark abandoning 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 last week.
Since the euros’s creation 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.
The Local Germany has much more on the ECB’s decision to buy €60 billion of European debt every month from March 2015 until September 2016.
