Friday, October 1, 2021

UPDATED-Denmark cuts benchmark rates after FX purchases

     (Updated with amount of foreign exchange purchases in September)
     Denmark's central bank lowered its main interest rates following foreign exchange purchases aimed at defending the krone's peg to the euro, reversing a similar-sized rate hike in March.
     Danmarks National Bank, whose main function is to keep the Danish krone in a fixed exchange rate to the euro, said on Sept. 30 it would cut the rate on its current account, certificates of deposit and lending rate by 10 basis points as of Oct. 1.
     This brings the current account rate and the deposit rate to minus 0.60 percent, the lending rate to minus 0.45 percent and the discount rate is zero percent.
     "The interest rate reduction follows Danmark Nationalbank's purchase of foreign exchange in the market," the bank said on its website.
     In the month of September the central bank purchased net 23.4 billion krone of foreign exchange interventions, boosting its purchases in the first nine months to 73.0 billion, raising its foreign exchange reserves 62.7 billion.
     In March this year the Nationalbank raised its deposit rate by 10 basis points to minus 0.50 percent from minus 0.60 percent in what it said was a technical adjustment of its policy instruments to reduce fluctuations in money markets from changes in the size and composition of banks' deposit and lending rates.
      The bank added the change should not be considered a change in the bank's monetary policy stance.
     As part of this change six months ago, the bank also simplified its policy rates by introducing a single deposit rate and a single rate for loans, and narrowed the differential between the two rates.
      Nationalbanken holds the world record in negative interest rates. 
      In July 2012 Nationalbanken lowered its three main interest rates following a rate cut by the European Central Bank, with the Danish central bank's deposit rate cut to minus 0.20 percent, the first time in its nearly 200-year history financial institutions paid to deposit liquidity.
      Apart from a brief period from April 2014 to September 2014, when the deposit rate was positive at 0.05 percent, the deposit rate, which became the bank's benchmark rate that year, has been negative.
      Last week Nationalbanken said Denmark's economy was heading towards a moderate boom and forecast economic growth of 3.8 percent this year, 3.1 percent in 2022 and 2.4 percent in 2023.



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