Danish central bank, Danmarks Nationalbank today cut the interest rate on certificates of deposit to -0.75 percent. It kept the current account rate and the lending rate on hold at 0.00 percent and 0.05 percent, respectively. The central bank also kept banks’ current account limit the same. This move follows the 10 basis point rate cut from ECB announced earlier today.
“The decision brings the key policy rate in Denmark back down to the recent record-low level of minus 0.75 percent. 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 percent for 12M”, stated Danske Bank in a research report.
Moreover, the ECB also introduced a tiered deposit system. This might possibly hamper part of the pass through of the rate cut to market rates. Therefore, there is a risk that the spread between DKK and EUR rate might broaden further after today and the discount in EUR/DKK FX forwards might increase. This might in turn tend to push EUR/DKK higher.