Thursday, March 10, 2016

Denmark leaves rates steady in wake of ECB easing

    Denmark's central bank left its key rates unchanged in the wake of the European Central Bank's latest cut to its rates, including the deposit rate, and an expansion of its asset purchases.
    Danmarks Nationalbank, whose main function is to keep the krona in a fixed exchange rate to the euro, said its decision meant that the spread of its deposit rate to the euro area would narrow to 0.25 percentage points from 0.35 percentage points.
    The Nationalbank added that its decision was also "based on the sale of foreign exchange in the market since the turn of the year."
     In January the Danish central bank raised its deposit rate by 10 basis points to minus 0.65 percent, resulting in a spread to the euro area's deposit rate of 0.35 percent.
     Earlier today the ECB cut its deposit rate by a further 10 basis points to minus 0.40 percent while the Danish central bank left its rate steady at minus 0.65 percent for a difference of 25 basis points.
    The Danish central bank also left its lending rate steady at 0.05 percent, the discount rate at 0.0 percent and the current account rate at 0.0 percent.
    The main objective of Denmark's central bank 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 rate target of 7.46038 crowns to the euro, within a tolerance band of plus/minus 2.25 percent, or between 7.29252 to 7.62824.

    Denmarks Nationalbank issued the following statement:

"The European Central Bank, ECB, has reduced the interest rate on the deposit facility by 10 basis point to -0.40 per cent. Danmarks Nationalbank keeps the lending rate, the interest rate on certificates of deposit, the current account rate and the discount rate unchanged.
Keeping the interest rates unchanged narrows the monetary policy rate spread to the euro area from -0.35 to -0.25 percentage points. The decision to leave rates unchanged is based on the sale of foreign exchange in the market since the turn of the year."


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