COPENHAGON: Denmark’s central bank has cut its interest rates again, in an effort to keep the krone pegged to the euro.
It is the fourth time in three weeks that it has cut its key policy rate, dropping it to -0.75% from -0.5%.
The central bank has also intervened in the foreign exchange markets to the tune of $16bn to weaken the krone.
The bank said that it would continue its interventions with the aim of keeping the krone in a tight trading range against the euro.
Central Bank governor Lars Rohde said: “There is no upper limit to the size of the foreign exchange reserve.
“The Danish National Bank has the necessary instruments to defend the fixed exchange rate policy for as long as it takes.”
Denmark’s has tied its currency, the krone, to the euro, and before that to the German mark for 35 years.
That peg has come under increasing strain as the European Central Bank, the ECB, has taken steps to combat deflation.
As the euro has weakened, money has flooded into “safe haven” currencies such as the Swiss franc and the krone.
Switzerland gave up trying to keep its currency artificially weak on 15 January and allowed the franc to surge in value.
Many speculators are investing in krone on hopes that Denmark will do the same
Denmark’s borrowing cost – the yield on 10-year government bonds – has dropped to the second lowest in the world.
Only Switzerland borrows at a cheaper rate. The yield there is negative, meaning depositors pay the central bank to lend it money.
