Thursday, January 29, 2015

Denmark cuts deposit rate another 15 bps to -0.50%

   Denmark's central bank continued its battle to reduce the attractiveness of holding Danish crowns, cutting its rate on certificates of deposit by a further 15 basis points to minus 0.50 percent, its third rate cut in less than two weeks.
   Danmarks Nationalbank said in a brief statement that the rate cut followed purchase of foreign  exchange in the market, indicating that it has been intervening in recent days to hold down the value of the crown against the euro.
    The Danish central bank left its lending rate at 0.05 percent - it was last cut by 15 basis points on Jan. 19 following the Swiss National Bank's (SNB) scrapping of its upper limit of the franc to the euro. It also left the discount rate and current account rates at zero percent.
    The SNB's surprise abandoning of its peg to the euro triggered speculation that Denmark would be next in line to alter its exchange rate policy, driving up the crown's exchange rate. During the week following the SNB's move on Jan. 15, Denmark sold almost $10 billion to hold down its crown.
    On Jan. 22 the Danish central bank again cut the deposit rate by 15 basis points to minus 0.35 percent, days after the central bank and the country's economy minister insisted that the policy of a fixed exchange rate to the depreciating euro would be maintained.
    The main objective of Danmarks Nationalbank since 1982 is to defend the exchange rate of the crown to the euro as a way to control inflation. It uses interest rates to make it more or less attractive to hold crowns and has a central exchange target of 7.46038 crowns to the euro, within a tolerance band of plus/minus 2.25 percent, or a rate of 7.29252 to 7.62824.
    Today the crown was quoted at 7.44255 to the euro.


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