Denmark’s decade-long experiment with negative rates should end soon

COPENHAGEN, July 22 (Reuters) – Danish banks are expecting a decade-long experiment with negative interest rates to end soon, after the country’s central bank raised its key interest rate, bringing it closer to the territory of positive rates.

In 2012, Denmark became the first country in the world to impose negative rates, a trend adopted by other countries since to combat both low inflation rates and changing savings patterns. consumers and businesses.

But as central banks, including Denmark’s, are now raising rates to curb soaring inflation, lenders are set to break away from the negative interest rate trend of previous years.

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“This is the starting point for us to exit the era of negative interest rates very soon,” said Arbejdernes Landsbank economist Lisette Rosenbeck Christensen.

Denmark’s central bank raised its benchmark rate by 0.5 percentage points to minus 0.1% on Thursday, following a rate hike earlier in the day by the European Central Bank (ECB) aimed at stifling inflation. Read more

The main mandate of the Danish central bank is to maintain the stability of the krone currency in a narrow band against the euro. It does this through foreign exchange interventions and by adjusting its rate at the same time as the ECB.

“The Danish economy is now on the verge of emerging from the period of negative interest rates,” said Soren Kristensen, chief economist at Sydbank.

On Friday, Nykredit, Denmark’s second largest lender, became the first to entirely scrap negative interest rates on deposits from private customers.

“With the latest adjustment from Denmark’s central bank and another adjustment expected in September, we at Nykredit have decided that negative interest rates on deposits for our private customers must end,” said the bank director of Nykredit, Henrik Rasmussen, in a statement.

Danish lenders Danske Bank (DANSKE.CO), Jyske Bank (JYSK.CO) and Nordea (NDAFI.HE) also raised rates on large deposits on Thursday following the central bank’s hike, but kept them on hold. below zero.

Most Danish lenders introduced negative interest rates on large customer deposits in 2019 to cushion the costs incurred in depositing funds at the central bank at a negative rate.

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Reporting by Nikolaj Skydsgaard; Editing by Alison Williams

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