Denmark: Nationalbanken puts an end to negative deposit rate experiment
April 24, 2014
At its 24 April monetary policy meeting, the Bank of Denmark (Nationalbanken) raised the deposit rate by 15 basis points from minus 0.1% to plus 0.05%. The increase, which followed the Bank's sale of foreign exchange in the market, puts an end to the negative deposit rate policy that the Danish Central Bank implemented for the first time ever on June 2012. The Bank left the lending rate at 0.20%, the discount rate at 0.0% and the current account rate at 0.0%.
The Bank, which changes monetary policy only to defend the local currency, pointed out that the decision to increase the deposit rate was taken in order to support the Danish krone and to keep it within its required narrow band against the euro (EURO 1 = Krone 7.46038 +/- 2.25%). The Bank added that, “the short term rates in the euro area which are higher than the equivalent Danish rates have increased.” This, in turn, caused the local currency to weaken. In June 2012, following a period of strength that was triggered by an inflow of capital seeking a safe investment, the Bank, in an attempt to weaken the currency, cut the deposit rate in order to drive it into negative territory.
Author: Dirina Mançellari, Senior Economist