The Danish central bank raised its benchmark interest rate, mirroring a hike from the European Central Bank earlier in the day, to protect the krone’s peg to the euro.
(Bloomberg) — The Danish central bank raised its benchmark interest rate, mirroring a hike from the European Central Bank earlier in the day, to protect the krone’s peg to the euro.
Nationalbanken lifted its current account rate to 2.85% from 2.6%, it said in a statement on Thursday after ECB also had raised its benchmark by 25 basis points. The match was expected by all seven economists surveyed by Bloomberg News.
The Scandinavian country, which was the first in the world to impose negative interest rates in 2012, has now raised borrowing costs seven times in 10 months, following ECB hikes. In October and in February, it raised the key rate less than the ECB to address the krone’s strength.
“The pressure for a stronger Danish krone could easily re-emerge forcing the central bank to do more intervention and possibly also to widen the interest rate spread to the Euro area even further,” Nordea Bank Abp’s economist Jan Storup Nielsen said in a note to clients.
The krone was little changed against the euro at 5:09 p.m. in Copenhagen.
Denmark’s krone has since May 2020 been trading on the strong side of its 7.46038 parity against the euro amid a record current-account surplus. But krone has weakened slightly over the last two months, placing it closer to parity and the central bank hasn’t intervened in the currency market to steer the peg for two months now.
Recent ECB Hikes and Danish Reaction
Nationalbanken doesn’t have an inflation mandate. Denmark’s inflation rate has come down from a four-decade peak of 10.1% in October and is now at 6.7%. The government sees the inflation rate averaging 3.9% this year and 2.8% in 2024.
(Updates with analyst comment in 4th paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.