What does ‘historic’ interest rate hike mean for Denmark?
The Nationalbank, Denmark’s central bank, has increased interest rates by 0.75 percent to 0.65 percent.
The Danish central bank confirmed the decision in a statement on Thursday following a similar decision by the European Central Bank (ECB), the central bank for the eurozone.
The increase represents the highest raise in interest rates by the Nationalbank since 1998 and means that interest goes above 0 percent for the first time since 2014. Prior to Thursday’s announcement, Danish central bank interest rates were -0.10 percent.
The Danish increase follows directly from the similar decision made by the ECB, in keeping with Denmark’s monetary policy of parity with the euro, keeping the value of 1 euro at 7.50 kroner. Interest rates must be adjusted concurrently to ensure this.
In general, the interest rate changes seen across Europe on Thursday are of historic proportion.
The accelerating pace of inflation pushed the ECB to reach for the biggest interest rate rise in its history, of 75 basis points, in the hope of taming runaway price rises, news wire AFP reported.
Inflation estimates were meanwhile also raised again by the ECB as the eurozone faces a painful surge in energy prices in the wake of the Russian invasion of Ukraine.
READ ALSO: How much will Danish energy bills go up this winter?
The ECB warned on Thursday that inflation was "far too high" and likely to stay above target for "an extended period" as it made its biggest ever interest rate hike, AFP writes.
It lifted its inflation outlook for 2022 to 8.1 percent from 6.8 percent previously forecast, and for 2023 it raised the figure to 5.5 percent from 3.5 percent. Consumer price growth is then expected to ease to 2.3 percent in 2024, close to its previous forecast of 2.1 percent.
In Denmark, an increase in interest rates has a similar objective of taking the momentum out of inflation.
That is broadly because higher interest makes it more expensive to loan money and more attractive to save. This can reduce consumer spending and check spiralling prices.
“It’s necessary for the central banks to now show that they will not permit inflation to stay high. That way they can hopefully prevent that an expectation of high inflation can take hold and become self-fulfilling,” Danske Bank senior economist Las Olsen told news wire Ritzau in a written comment.
Higher interest rates are not surprising in the current climate, Sydbank senior economist Søren Kristensen said.
“The interest rate increase today means slightly higher interests [for bank customers] but was broadly calculated for. It is therefore more of a way of cementing the increases in interest rates since the New Year,” Kristensen told Ritzau.
“However, it will have a large significance for the Danish economy and especially the housing market. Here, we expect that increasing interest this autumn will bolster the drops in price we are already seeing,” he said.
Accountholders at Nordea, one of the largest banks operating in Denmark, will see the interest rates on some of their savings flip into the black on September 20th, the bank said following the Nationalbank announcement.
A handful of other Danish banks scrapped negative interest rates earlier this year, among them Nykredit, Arbejdernes Landsbank and Saxo Bank.
READ ALSO: Denmark’s banks raise interest rates but many still remain negative
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The Danish central bank confirmed the decision in a statement on Thursday following a similar decision by the European Central Bank (ECB), the central bank for the eurozone.
The increase represents the highest raise in interest rates by the Nationalbank since 1998 and means that interest goes above 0 percent for the first time since 2014. Prior to Thursday’s announcement, Danish central bank interest rates were -0.10 percent.
The Danish increase follows directly from the similar decision made by the ECB, in keeping with Denmark’s monetary policy of parity with the euro, keeping the value of 1 euro at 7.50 kroner. Interest rates must be adjusted concurrently to ensure this.
In general, the interest rate changes seen across Europe on Thursday are of historic proportion.
The accelerating pace of inflation pushed the ECB to reach for the biggest interest rate rise in its history, of 75 basis points, in the hope of taming runaway price rises, news wire AFP reported.
Inflation estimates were meanwhile also raised again by the ECB as the eurozone faces a painful surge in energy prices in the wake of the Russian invasion of Ukraine.
READ ALSO: How much will Danish energy bills go up this winter?
The ECB warned on Thursday that inflation was "far too high" and likely to stay above target for "an extended period" as it made its biggest ever interest rate hike, AFP writes.
It lifted its inflation outlook for 2022 to 8.1 percent from 6.8 percent previously forecast, and for 2023 it raised the figure to 5.5 percent from 3.5 percent. Consumer price growth is then expected to ease to 2.3 percent in 2024, close to its previous forecast of 2.1 percent.
In Denmark, an increase in interest rates has a similar objective of taking the momentum out of inflation.
That is broadly because higher interest makes it more expensive to loan money and more attractive to save. This can reduce consumer spending and check spiralling prices.
“It’s necessary for the central banks to now show that they will not permit inflation to stay high. That way they can hopefully prevent that an expectation of high inflation can take hold and become self-fulfilling,” Danske Bank senior economist Las Olsen told news wire Ritzau in a written comment.
Higher interest rates are not surprising in the current climate, Sydbank senior economist Søren Kristensen said.
“The interest rate increase today means slightly higher interests [for bank customers] but was broadly calculated for. It is therefore more of a way of cementing the increases in interest rates since the New Year,” Kristensen told Ritzau.
“However, it will have a large significance for the Danish economy and especially the housing market. Here, we expect that increasing interest this autumn will bolster the drops in price we are already seeing,” he said.
Accountholders at Nordea, one of the largest banks operating in Denmark, will see the interest rates on some of their savings flip into the black on September 20th, the bank said following the Nationalbank announcement.
A handful of other Danish banks scrapped negative interest rates earlier this year, among them Nykredit, Arbejdernes Landsbank and Saxo Bank.
READ ALSO: Denmark’s banks raise interest rates but many still remain negative
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