- Danmarks Nationalbank (DN) today cut the rate on certificates of deposits by 10bp to minus 0.05% in a move that follows the rate cut made by the ECB earlier today.
- DN has kept the current account limit unchanged at DKK37.5bn, which will increase the pass through of the rate cut on to money market rates relative to the cut to negative in July 2012.
- Today’s move does not change our call for a unilateral DN rate cut on 3M as EUR/DKK remains well below the central rate. Intervention and a subsequent DN rate cut will ease some of the current downward pressure on EUR/DKK.
Furthermore, DN has announced that it will keep the current account unchanged at DKK37.5bn. This is a departure from July 2012, when DN last cut the rate on certificates of deposits to negative. Then the current account limit was increased to DKK69.7bn from DKK23.2bn to reduce the amount banks were forced to place at a negative rate. The decision not to widen the current account limit this time around increases the effect of the rate cut relative to July 2012.
The move follows the decision made earlier today by the European Central Bank (ECB) to cut all policy rates by 10bp – DN normally tracks interest rate changes made by the ECB due to the Danish fixed exchange rate policy.
EUR/DKK has declined rapidly since late August and remains well below the central rate of 7.46038 – it hovered around 7.4450 immediately following the announcement by DN. In our view, this will warrant further independent action from DN in the form of intervention and a subsequent unilateral rate cut (see FX Edge: DN to cap DKK appreciation with a 10bp rate cut in 3M, 2 September).
Hence, today’s move by DN does not change our call for an independent rate cut by DN within the next 3M, which should relieve some of the present downward pressure on EUR/DKK.
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