Danish central bank will not track ECB rate cut

The ECB's Governing Council has once again opened the floodgates for monetary easing. Even if the ECB chooses to slash its deposit rate in early December, economists do not expect the central bank to follow suit with a CD rate cut in the immediate aftermath. When the central bank lowered its CD rate to 0.75% at the beginning of February, it sent a clear signal to the markets that this was the lower threshold for the CD rate and the subsequent stabilisation of the DKK was therefore ensured solely through currency reserve accumulation.

"We expect the bank to stick with this strategy in the current situation. In other words, if the ECB cuts its deposit rate, the central bank will keep rates unchanged. And if this lower rate spread triggers renewed DKK strengthening versus the EUR, this pressure will be mitigated through currency reserve accumulation", says Nordea Bank.

"Even in case of significant pressure for a stronger DKK, we do not expect the bank to wield the interest rate weapon again. In this scenario we are more inclined to believe that the central bank will start an actual purchase programme - an instrument that has again become available after the central bank in early October resumed issuance of government bonds", added Nordea Bank.