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