The Danmarks Nationalban, Denmark’s central bank, just cut interest rates even further into negative territory.
On Thursday, Danmarks Nationalbank took its main deposit rate to -0.5% from -0.35%.
Two weeks ago, the Danmarks Nationalbank cut interest rates twice as the bank works to defend its peg on the krone against the euro, which has fallen sharply in value.
In its statement, the Nationalbank said, “The interest rate reduction follows Danmarks Nationalbank’s purchase of foreign exchange in the market.”
In a post on Bloomberg View earlier this month, Guan Yang outlined some of the problems with the krone’s peg against the euro, namely that the desirability of pegging the krone against the euro is “beyond debate” in Denmark.
Yang, who studied economics at the University of Copenhagen, wrote that, “
Whenever abandoning the peg is mentioned — which isn’t often — economists and politicians are almost offended. They regurgitate standard arguments without much substantive evaluation of the benefits and costs.”
Following the Swiss National Bank’s decision to remove its peg against the euro, the question being asked in markets is when the Danmarks Nationalbank will follow suit and abandon its own peg.
Yang wrote that he has “absolutely no hope” that Denmark will abandon this peg given the current tenor of economic and political debate in Denmark. But in a world where monetary policy seems to be moving towards ever more unconventional methods, questions about Denmark’s peg are probably not going anywhere.
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