Denmark lowers interest rate after ECB move

The announcement that the European Central Bank (ECB) will buy €60 billion of European debt every month from March 2015 until September 2016 has led the Danish central bank to once again drop its deposit interest rate.

Denmark lowers interest rate after ECB move
ECB President Mario Draghi announced on Thursday that the bank will purchase 60 bn euros of bonds per month until September 2016. Photo: AFP/Daniel Roland/Scanpix
Denmark's central bank, Nationalbanken, cut its deposit interest rate Thursday following the European Central Bank's announcement of stimulus measures to combat deflation in the stagnant eurozone economy.
The bank cut the deposit rate by 0.15 percentage points to -0.35 percent but left its lending rate unchanged at 0.05 percent, in a move aimed at defending the Danish krone's pegged exchange rate with the euro.
On Monday the deposit rate, which was cut to below zero in September for the first time since 2012, had already been reduced to -0.2 percent from -0.05 percent.
"The central bank is demonstrating that it is ready to set interest rates as low as is needed," Nordea economist Helge Pedersen wrote on Twitter.
Pedersen echoed what his colleague Jan Storup Nielsen told The Local last week
“There’s definitely a scenario where we can see the Danish interest rate going to a record low,” Nielsen, a Nordea analyst, said. 
Analysts have speculated over the possibility of Denmark abandoning its policy of shadowing the euro in the wake of the turbulence caused by the ECB's aggressive monetary policy and Switzerland removing its cap of 1.20 francs to the European single currency last week.
Since the euros's creation in 1999, the krone has been pegged to the currency 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 about 7.46 krone per euro.
The policy allowed the country to enjoy the benefits of a stable exchange rate with the currency of its main trading partner Germany, without entering the Economic and Monetary Union which the Danes rejected in a referendum on the Maastricht Treaty in 1992.
The Local Germany has much more on the ECB's decision to buy €60 billion of European debt every month from March 2015 until September 2016. 

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Danish central bank says speculators boosted profit

Denmark's central bank (Nationalbanken) on Wednesday said a big chunk of its profits last year came from battling speculators who bet it would abandon the krone's peg to the euro.

Danish central bank says speculators boosted profit
Lars Rohde presented the central bank's 2015 results on Wednesday. Photo: Nikolaj Linares/Scanpix
The central bank said it made a profit of 3.6 billion kroner last year ($534 million, €483 million), out of which 2.2 billion kroner came from “the pressure on the krone in early 2015”.
The Scandinavian country adopted a fixed exchange rate to the Deutsche Mark in 1982, and adopted a similar policy towards the euro since the creation of the single currency in 1999.
When Switzerland unpegged the Swiss franc from the euro on January 15th, 2015, prompting it to soar in value, speculators believed Denmark would follow suit with the krone.
But when their interest faded, the central bank bought back the currency at a slightly lower exchange rate than at which it was sold.
“To this should be added substantial interest income resulting from the reduction of deposit rates to -0.75 percent,” the central bank wrote in its annual report.
Sydbank analyst Jacob Graven said the result was a sign of “hysteria among investors.”
“There was no reason to believe that the central bank would lose the krone war, because (its) coffers are inexhaustible,” he wrote in a note to investors, referring to the central bank's capacity to create unlimited amounts of kroner to keep a lid on the currency's appreciation.
A quarter of the total profit, which included income from investments, was transferred to the government.
On a more sombre note, the central bank lowered its Danish growth forecast for this year by half a percentage point to 1.3 percent.