First Danish Rate Increase in 18 Months

January 25, 2013

The Danish National Bank’s key lending rate and certificate of deposit rates were increased by 10 basis points each effective today to 0.30% and -0.10%, respectively.  The previous change in any Danish central bank interest rates was implemented on July 6, 2012, and the last hike in any rates was done July 8, 2011.  Today’s action is intended to alleviate some downward pressure on the krone against the euro.

Danish voters in the 1990’s opted not to exchange their krone for the euro but have subordinated domestic monetary policy to an exchange rate target of around 7.46 krone per euro.  Whenever the ECB modifies its key rates, so do the Danes for the most part.  Examples of such lock-step adjustments occured in July 2012, December 2011, November 2011, July 2011, and April 2011.  On some other occasions, Danish rates are adjusted even when ECB rates have not done so but simply to promote a better balance of supply and demand for the krone and help enforce the policy of targeting the exchange rate against the euro.  Today’s rate increase was such an example.  Previous independent rate changes were also implemented on June 1, 2012, May 25, 2012 and December 9, 2012, but each of those instances involved a rate decline. Yen depreciation and improving confidence in the sustainability of the common European currency have subjected the euro to upward pressure, in turn forcing Danish monetary authorities to switch policy direction.

The Danish National Bank uses four interest rates.  In addition to the aforementioned benchmark lending rate and CD rate, there is a discount rate and a current account rate, both of which are currently at zero percent.  After the last previous rate hike of any kind in July 2011, Denmark’s lending rate was 1.55%.  The CD rate was 1.10%.  The discount rate was at 1.25%, and the current account rate was 1.00%. 

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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