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BANK

Central bank brings back negative deposit rate

Nationalbanken follows the lead of the European Central Bank and lowers its deposit rate to -0.05 percent.

Central bank brings back negative deposit rate
Nationalbanken. Photo: gcbb/WikiCommons
Denmark's central bank Nationalbanken cut its deposit rate into negative territory on Thursday after the European Central Bank made a surprise cut in key interest rates to avoid deflation.
 
The deposit rate, which was below zero from July 2012 until April this year, was lowered to -0.05 percent from 0.05 percent.
 
The lending rate, the current account rate and the discount rate were kept unchanged.
 
"The interest rate reduction is a consequence of the reduction by the European Central Bank of its monetary policy rates by 0.10 percentage point," the Nationalbank said in a statement.
 
The deposit rate is the rate at which commercial banks are paid, or in this case have to pay, to place funds at the central bank.
 
Denmark's current monetary policy is aimed at maintaining a stable exchange rate between the Danish krone and the euro. The krone is pegged to the euro through an agreement known as the European Exchange Rate Mechanism (ERM II), under which the Danish currency can move only 2.25 percent up or down from a fixed rate of 7.46 krone per euro.

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FINANCE

Millionaires to be hit by negative interest rate at Danish bank

Jyske Bank is set to become the first major lender in Denmark to apply negative interest to customers’ savings accounts.

Millionaires to be hit by negative interest rate at Danish bank
File photo: Mads Claus Rasmussen/Ritzau Scanpix

But only customers with savings of more than 7.5 million kroner (1 million euros) will be affected by the change—initially, at least.

The bank confirmed the new conditions as it announced results for the first six months of 2019.

Interest rates of 0 percent will be applied to the first 7.5 million kroner of all customers’ savings, with -0.6 percent applied thereafter unless alternative terms and conditions have been agreed, Jyske Bank said.

Most customers will therefore be unaffected by the change initially, but others may be encompassed further down the line, according to CEO Anders Dam.

“I hope (it won’t happen), but I can’t promise. It depends what happens in future, including whether there are further drops in interest rates,” Dam told financial newspaper Børsen.

The CEO said the bank’s decision has been made based on negative interest rates in Denmark in recent years, effectively costing Jyske money to hold customers’ savings.

“The prevailing negative interests that have characterized the Danish market since 2012—broken only in 2014—seem to have become more permanent in character,” Dam, said.

“Market forecasts project that negative interests will prevail for several years,” he added.

The new Jyske Bank terms mean that, for example, a customer with 10 million kroner in savings will pay 15,000 kroner annually to keep them at the Danish bank.

But the bank is also open to negotiating rates with customers, Dam added.

Only a small number of customers will in fact end up paying negative interest, according to the assessment of economist Per Hansen of investment firm Nordnet.

“It requires you to have more than 7.5 million kroner – not many do, after all,” Hansen said.

“Additionally, you would need to have no other business with the bank, and therefore no special arrangements, for negative interest to apply,” he said.

Although the negative interest is the first to be applied to customers, businesses in the country have already experienced the unfavourable terms.

Jyske Bank introduced negative interest for businesses under broad terms in 2016, according to Finanswatch.

READ ALSO: Can you really get paid for borrowing money in Denmark?

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