Denmark: Nationalbanken increases deposit rate in January
January 7, 2016
On 7 January, the Bank of Denmark (Nationalbanken) raised its main deposit rate by 10 basis points from minus 0.75% to minus 0.65%, in an effort to be in tune with the latest moves by the European Central Bank. Nationalbanken kept the lending rate, the discount rate and the current-account rate unchanged at 0.05%, 0.00% and 0.00%, respectively. The change in the deposit rate is intended to defend the local currency and keep it within a pre-established narrow band against the euro (EUR 1 = DKK 7.46038 plus/minus 2.25%). Nationalbanken’s move underlines how deeply the ECB’s movements are felt even in the countries that do not have the euro as their currency.
The Danish Central Bank implemented a negative deposit rate policy for the first time ever in June 2012 amid risks of a Euro area break up. The Bank last changed its main deposit rate in January of last year as a response to the ECB’s massive stimulus package. The negative rates are designed to discourage capital inflows and keep the currency from appreciating further. However, since the ECB’s last meeting on 3 December, the euro has gained some strength against other currencies, including the krone. This has in turn caused pressure on the Danish currency to abate.
Author: Dirina Mançellari, Senior Economist