Denmark’s central bank raises key rate to 2.1%

COPENHAGEN (Reuters) – Denmark’s central bank raised its key interest rate by 35 basis points to 2.1% on Thursday, following a rate hike earlier in the day by the European Central Bank.

Earlier on Thursday, the ECB raised its benchmark deposit rate by 50 basis points to 2.5% and signalled a further hike in March.

Unlike most central banks, the primary mandate of the Danish central bank is to keep the crown currency stable versus the euro under a fixed exchange rate regime, a task it fulfils by intervening in the currency market and changing rates.

“The widening of the monetary policy spread vis-à-vis the euro area follows Danmarks Nationalbank’s purchases of foreign exchange in the market,” the central bank said in a statement.

By implementing a smaller rate hike than the ECB, the central bank aims to limit a further strengthening of the crown.

“The crown is strong at the moment, and therefore a larger interest rate spread has been necessary,” Totalkredit’s chief analyst Sune Malthe-Thagaard said in a note.

Denmark, the first country in the world to impose negative rates in 2012, broke with the decade-long experiment in September when it lifted its key rate into positive territory.

Denmark’s current account rate, which is the benchmark rate, and the certificate of deposit rate were each raised by 35 basis points from 1.75% to 2.1%. The lending rate was also raised by 35 basis points to 2.25% from 1.9%.

(Reporting by Nikolaj Skydsgaard; Editing by Alex Richardson, Kirsten Donovan)