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Fast Comment DenmarkThe Danish central bank mirrored the ECB rate cut

  1. First rate action since January 2016
  2. No changes to the DN's tiering system
First rate action since January 2016
Following the ECB's announcement of a comprehensive stimulus package today, attention was directed at the likely response from Danmarks Nationalbank (DN). A reaction was expected but there has been some doubt about the extent of this in advance. However, as we expected, DN chose to mirror the ECB deposit rate cut by 0.10 percentage point to -0.75 percent. Thus the deposit rate is back at a historical low, and this was the first interest rate action from DN since January 2016, which is a record-long time without interest rate action.
No changes to the DN's tiering system
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. A potential enhancement of the system has been downplayed by DN's governor Lars Rohde beforehand, as he has argued that the system limits the effect of policy rate changes, which of course is correct. Nevertheless, the ECB today chose to introduce its own tiering system on deposit rates for banks' excess liquidity, as it wants to mitigate the de facto negative effect of lower interest rates on banks. So it may be premature to believe that DN is about to phase out this instrument all together. The somewhat underwhelming comprehensive package from the ECB today perhaps made it somewhat easier to settle for a similar rate cut from DN, and the DKK weakened somewhat extra to above the central parity against the EUR after the announcement (graph).

Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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