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Denmark keeps interest rates despite ECB cut

12/03/2015 | 11:00am EDT

COPENHAGEN (Reuters) - Denmark's central bank kept its key certificate of deposit rate unchanged at a record low -0.75 percent and the lending rate at 0.05 percent, it said in an statement on Thursday in a rare move away from its tendency to follow the ECB's moves.

As widely expected by analysts, the ECB cut its deposit facility to -0.30 percent from -0.20 percent, a move designed to stimulate lending by increasing the penalty on banks that leave their excess cash with the ECB.

"Keeping the interest rates unchanged narrows the monetary policy rate spread to the euro area from -0.55 to -0.45 percentage points," the central bank said in a statement.

Economist Jacob Graven from Sydbank said a narrowing of the spread was a positive for the central bank.

"But it can not be excluded that the narrowed interest rate spread may lead to foreign currency flowing again into Denmark," Graven wrote in a note to clients.

The cheap money in the euro zone could increase demand for Danish assets and put appreciation pressure back onto the crown, as happened at the start of the year when the central bank slashed rates deep into negative territory to maintain the crowns peg to the euro.

The central bank's foreign currency reserves peaked to a record of 737.2 billion Danish crowns (£71.2 billion) in March as it bought foreign currency to flood the market with the crown to keep it from appreciating beyond the narrow corridor that it trades to the euro.

"There is no doubt that an independent rate hike from the central bank has moved far into the future," analyst Tore Stramer from Nykredit Markets wrote in a note.

By 1526 GMT the crown <EURDKK=D3> is traded at 7.4590 crown per euro, close to the central parity 7.46038 crown per euro.

Under the European Union's Exchange Rate Mechanism (ERM2), Denmark, an EU member but euro zone outsider, has agreed to keep the crown at 2.25 percent either side of the central parity rate. In practise, the crown has not moved more than 0.5 percent on either side.

(Reporting by Ole Mikkelsen; editing by Sabina Zawadzki)

ę Reuters 2015
Stocks mentioned in the article
ChangeLast1st jan.
EURO / DANISH KRONE (EUR/DKK) 0.00% 7.43774 Delayed Quote.-0.07%
THE LEAD CO., INC. -0.77% 648 End-of-day quote.-22.86%
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