Thursday, July 5, 2012

Denmark cuts interest rates by 25 bps to negative rate

    The Danish central bank cut its key interest rate by 25 basis points to a negative 0.20 percent following a rate reduction by the European Central Bank.
     Danmark's Nationalbank said in a statement that the benchmark certificate of deposit rate was cut to minus 0.2 percent, which means that banks are in the unusual situation of paying to deposit their money with the central bank.
    The bank's lending rate was also cut by 25 basis points to 0.20 percent from 0.45 percent. The bank last cut the deposit rate to 0.05 percent in May.
    "In connection with the introduction of negative interest rate on certificates of deposit the current account limits will be revised upward," the bank said in a statement.

    The objective of Denmark's monetary policy is to maintain a fixed exchange rate to the euro and thus create a basis for low inflation.  Denmark is not a member of the 17-nation euro area that shares the euro currency.
    By lowering interest rates on the Danish crown currency, it will have a tendency to weaken relative to the euro and following the move by Nationalbanken, the crown eased to 7.44 to the euro but later rebounded. The crown has been under upward pressure as a safe-haven currency due to the debt problems in the euro area.


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