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Danish central bank slashes rates again

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 Danish central bank slashes rates again
Some are speculating that Denmark could follow Switzerland's example and remove the kroner's peg against the euro. Photo: Colourbox
18:14 CET+01:00
Denmark's central bank cut its deposit interest rate Thursday for the second time in a week to maintain its currency peg against the euro.

Nationalbanken cut the deposit rate by 0.15 percentage points to -0.50 percent but left its lending rate unchanged at 0.05 percent. 

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.

On January 19 the deposit rate, which was cut to below zero in September for the first time since 2012, was reduced to -0.2 percent from -0.05 percent. Three days later it was lowered by another 0.15 percentage points.

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.

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.

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