Stockholm (Ekonamik) – On Thursday, September 12th the National Bank of Denmark announced it was cutting the interest rate on certificates of deposit by 10bps, echoing a similar decision by the ECB on the same day. The new interest rate on certificates of deposits is a record low of -0.75%.
Market reaction reflected the assumption that the Danish central bank follows the monetary policy pace of the ECB. “We do not look for further interest rate cuts from the ECB at present and, thus, we expect the key policy rate to stay at minus 0.75% for 12M,” commented Jens Nærvig Pedersen, Senior Analyst at Danske Bank Research. The analyst also noted a concern that the tiered application of the ECB’s rate cut to excess reserves could affect the exchange rate. “There is a risk that the spread between DKK and EUR rates could widen further after today and the discount in EUR/DKK FX forwards could increase. This would in turn tend to push EUR/DKK higher. EUR/DKK ticked marginally higher following the announcement,” he added.
Rasmus Gudum-Sessingø, Senior Economist at Handelsbanken Capital Markets made a similar observation. “As expected, DN’s other policy rates were left unchanged, but slightly more interestingly, DN chose not to make changes to the tiering system of the current account where banks deposit excess reserves,” he commented. “DKK weakened somewhat extra to above the central parity against the EUR after the announcement,” he concluded.
Image courtesy of Danmark’s Nationalbank
