Denmark’s Central Bank the Danmarks Nationalbank decided to lower interest rates to historic lows on Thursday effective from Friday the 25th to combat strengthening krone vs. the Euro. The lending rate was lowered 0.10 percentage points to 0.60 per cent and deposit and current account rates were also cut by the same amount to 0.20 and 0.15 per cent respectively. Discount rate remained unchanged at 0.75 per cent. The rate cut follows foreign currency purchases at the market.
Danish krone is pegged to the Euro with a 2.25% band at DKK 7.46038 (7.29252 to 7.62824). In effect the central bank has started defending the krone well before it even approaches the lower part of the range. That and remaining concerns of the Danish economy have kept the krone from becoming a safe haven in a similar manner as Swedish and Norwegian currencies have during the last year but escalating worries of Euro breakup seem to have led to more demand for it in recent days. How much of that is coming from domestic investors returning their Euro holdings is unclear.
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