Danish rates risk record lows after Swiss shock

Denmark’s central bank could be forced to cut its deposit rate to record lows later this year after Switzerland’s central bank scrapped the franc's cap against the euro, according to Danish analysts.

Danish rates risk record lows after Swiss shock
Denmark's Nationalbanken building. Photo: Danmarks Nationalbank
The Swiss National Bank (SNB) on Thursday cut its key interest rate by 0.5 percentage points to -0.75 percent and removed a longstanding cap against the euro, triggering an immediate appreciation in the Danish krone. 
On Thursday, the Danish krone was trading at 7.4350 per euro, its highest level since June 2012, as the currency drew unwanted investment away from the franc, pushing exchange rates
significantly above the ‘central parity rate’ of 7.46038 per euro targeted by the Nationalbanken. 
“There’s definitely a scenario where we can see the Danish interest rate going to a record low,” Nordea analyst Jan Storup Nielsen told The Local. “I think there’s been a significant inflow, and we can see that the Danish krone is getting stronger and that’s a normal sign that pressure has begun to build up.”
At the height of Europe’s debt crisis in 2012, Denmark lowered its deposit rate to minus 0.2 percent, a record low interest rate for Nationalbanken.  
Nationalbanken’s first line of attack against a strengthening krone is currency intervention, with the bank typically buying 10-15 billion kroner on the market before resorting to rate cuts.
In September to November last year, the bank purchased 6.9 billion Danish kroner ($1.1 billion) in the market to keep the kroner stable, while re-introducing negative rates, which require commercial rates to pay a fee to deposit funds at the central bank. 
Storup Nielsen said he didn’t expect the bank to introduce new rate cuts until later this month, when it would most likely begin with a cut of 0.1 percentage points to minus 0.15 percent. 
He said the bank would only resort to cutting the rate to the minus 0.2 percent record, if these measures failed to stem the krone's rise.
SEE ALSO: Soaring franc causes queues at currency exchanges – The Local Switzerland

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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?