Denmark Central Bank Forced to Cut Rate to -0.5 Percent

The Danish central bank cut its key interest rate for the third time in two weeks to another historic low after intervening in the market to keep the crown within a tight range against the euro.

The central bank cut its certificate of deposit rate to -0.5 percent from -0.35 percent, making a reduction of 45 basis points since Monday last week.

While analysts said last week that its actions might not be enough to weaken the crown, few expected another cut so soon, especially as Denmark’s rate went below the eurozone equivalent of -0.20 percent, making it less attractive than the euro.

Analysts have said the central bank tends to use interest rate tools after spending 10 to 15 billion crowns in intervention.

“It has become expensive to have Danish crowns and the (upward) pressure is therefore expected to ease off, but whether the rate cuts are enough to turn off the ‘stream’ into the market is still uncertain,” Danske Bank chief economist Steen Bocian said in a note.

The central bank has intervened every month since September, aside from December, as the crown has strained at the upper limit of its trading band with the euro.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza