(Bloomberg) — Denmark’s central bank mirrored its European counterpart and cut its benchmark interest rate by 25 basis points in order to protect its currency peg.
Nationalbanken, which doesn’t hold scheduled meetings, reduced its current account rate to 2.85% from 3.1%, it said on Thursday. It’s the Nordic nation’s third easing move this year and comes after the European Central Bank lowered its key deposit rate by the same margin earlier in the day.
A 1:1 match with the ECB was expected by all economists surveyed by Bloomberg News, given the Danish central bank hadn’t intervened in the currency market in prior weeks, and the krone is trading close to its central parity rate.
Nationalbanken, whose mandate is to keep a fixed exchange rate to the euro, usually mirrors the ECB’s rate decisions, though it may diverge if the krone becomes too weak or strong. Since early last year, it has maintained Denmark’s key rate 40 basis points lower than that of the euro-area in order to weaken the Danish currency.
“For a long time, the Danish krone has traded close to the central parity without intervention,” said Jan Storup Nielsen, chief analyst at Nordea Markets, in emailed comment. “This suggests that the current interest rate differential is a longer-term equilibrium.”
The success of Novo Nordisk A/S and other Danish drugmakers — fueling the currency’s strength via booming exports — is widely seen as the key factor forcing Denmark to keep interest rates lower than in the euro area. At the same time, Novo has also had a temporary opposite effect last year when its large dividend payout helped weaken the krone to a three-year low.
The central bank officially keeps the krone within a 2.25% band of 7.46038 per euro, although in practice it targets a narrower limit. It typically uses foreign currency interventions to steer the krone before resorting to interest rate changes or deviations from the ECB.
(Adds analyst quote in fifth paragraph, context in sixth paragraph)
©2024 Bloomberg L.P.
