Denmark’s central bank, which has kept interest rates in negative territory for more years than any other country, followed the lead of the European Central Bank on Thursday and raised its key interest rate by a similar percentage (50 basis points) to avoid risk disconnection of the value of the Danish krone from the euro, Bloomberg reports.
It thus took its key interest rate to -0.1% from -0.6%, according to its announcement. At 18:25 Greek time, the koruna – euro exchange rate was 7.4447 korunas, with little change.
The move by the ECB, which set its key interest rate at 0%, came in an attempt to control galloping inflation. The latter has led central banks from the US to Switzerland to abandon a decade of low-cost borrowing. Denmark’s central bank is expected to exit negative interest rates after the ECB meeting in September.
“There is a general push for a stronger Danish krone – which is why the rate remains 0.1% below the ECB counterpart,” Mikael Olai Milhoj, senior analyst at Danske Bank, said in a note to clients. bank. “It seems highly likely that the period of negative interest rates will also end in Denmark very soon, as is already happening in the euro area.”
The decision leads Denmark to lose the leadership of the lowest interest rates in the world, as it overtook the Swiss counterparts, which are moving at -0.25%.
Denmark’s central bank, rated AAA by international rating agencies, introduced negative interest rate policy a decade ago, does not hold scheduled monetary policy meetings and can adjust interest rates at will to defend linking the euro to the Danish krone.
“It is basically our view that the central bank will move completely in line with the ECB on rate hikes,” said Soren Kristensen, chief economist at Sydbank, who also sees an exit from the negative rate environment in September “likely”.