Denmark fights glut of cheap euro money | Business| Economy and finance news from a German perspective | DW | 29.01.2015
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Denmark fights glut of cheap euro money

Denmark's central bank has lowered its deposit rate again, making banks pay even more if they choose to park their money at the storage facility. The move was prompted by the ECB's quantitative easing policy.

The central bank of Denmark on Thursday announced its third deposit rate cut this month, aimed at offsetting the appreciation of the national currency, the krone.

The new rate of minus 0.5 percent comes into effect on Friday and means that lenders will have to pay the Danish central bank even more to keep deposits there at its storage facility.

The renewed rate cut is a direct response to the European Central Bank's recent decision to launch a government bond-buying program to see it absorb 60 billion euros ($70 billion) of sovereign debt every month to ease deflationary pressures in the eurozone and foster lending to companies and households.

Making the best of both worlds

Denmark is a member of the European Union, but has not adopted the euro. The country's central bank usually shadows decisions by the ECB, as it is government policy to peg the krone to the euro.

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Denmark: Yes to EU, but no to the euro

Analysts have speculated over the possibility of Denmark eventually abandoning its shadowing policy, following Switzerland's decision to remove its cap of 1.2 francs to the euro.

But so far the Danish currency is allowed to move only 2.25 percent up or down from a fixed rate of 7.46 krone per euro.

That policy has allowed Denmark to enjoy the benefits of a stable exchange rate with the currency of its main trading partner, Germany, without entering the Economic and Monetary Union, which the Danes rejected in a referendum back in 1992.

hg/bk (dpa, AFP)

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