Danish interest rates cut to -0.35 per cent to fight the falling euro

Tim Wallace
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DENMARK’S central bank cut its deposit rate for the second time this week yesterday in a bid to maintain the country’s long-held peg with the euro.

The rate was cut by another 0.15 percentage points to a record minus 0.35 per cent.

Money printing in the Eurozone pushed the euro down sharply, threatening Denmark’s target to keep the krone within 2.5 per cent of 7.46 krone to the euro.

Yesterday the currency held almost flat against the euro, but it has been edging up to below 7.44 to the euro recently as speculation over quantitative easing mounted.

Central bankers are also thought to have been selling tens of billions of krone to keep the currency weak.

Market pressure is also rising on the currency after the Swiss National Bank abandoned its two and a half-year old cap on the franc last week.

When the €1.20 cap was scrapped, the currency shot up by as much as 30 per cent.

However, Denmark is considered to be more committed to its peg, as it has been in place for 25 years.

Economists said the Danish central bank may need to copy the European Central Bank if it wants to keep the peg.

“As well as FX intervention, it might lower further the deposit rate,” said Jessica Hinds from Capital Economics. “But if the pressure on the krone is sustained, the Nationalbank may well have to follow the ECB and conduct QE of its own.”