Denmark Central Bank raises rates amidst global rate cuts

Amidst global rate cuts, there is one Central bank that has raised rates- Denmark Central Bank. In its press release it says:

Since mid-September there has been an increase in ECB’s marginal rate. This has reduced the spread between Danmarks Nationalbank’s lending rate and ECB’s marginal rate. Recently the interest-rate spread has been negative, which has led to an outflow of  foreign exchange.

Danmarks Nationalbank has intervened in the foreign-exchange market to support the krone. The intervention has now reached a point which leads to Danmarks Nationalbank’s increase of the lending rate. The size of the change in the interest rate reflects the need to establish a positive interest-rate spread.

So, because of higher interest rates in Euroarea, it was leading to capital outflows from Denmark.

However, ECB just lowered its rates . So, in a way Denmark didn’t need to do anything. It just acted before the ECB announcement and could end up making a mess.Is there any coordination between European authorities?  And this is happening after the promise by EU countries that they are united.

And what is also not understood fully is that Denmark announcement has come when its financial system has collapsed as well. Danish government has promised to guaarantee all bank deposits as confidence in their banks has evaporated. So why raise rates?

It is getting really complex.

Update:

As I finised this post, I received an update from Denmark Central Bank which says as of now interest rates are maintained. I have a feeling it would have to reverse its stance prtty soon.

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4 Responses to “Denmark Central Bank raises rates amidst global rate cuts”

  1. Interest Rates » Denmark Central Bank raises rates amidst global rate cuts Says:

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  2. Avid reader Says:

    Did you see what is happening to Iceland? Also, there is a chance that Pakistan may become a sovereign defaulter.

    Roubini got the whole financial crisis right. His 12 steps to financial crisis was correct.

  3. Pages tagged "denmark" Says:

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  4. Denmark continues to raise interest rates « Mostly Economics Says:

    […] continues to raise interest rates I had posted a while back that Denmark seems to be the only Central Bank to have raised interest rates. I had also said in […]

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