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Danish central bank raises key interest rate in wake of ECB hike

·2-min read
Denmark's Central bank sign is seen on a bank's headquarters in Copenhagen

(Corrects lending rate increase in 11th paragraph to 0.05%, not -0.05%)

COPENHAGEN (Reuters) - Denmark's central bank raised its key interest 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).

"The interest rate increase is a consequence of the increase by the European Central Bank of its main monetary policy rate," the central bank said in a statement.

The monetary policy spread to the euro zone will remain unchanged, it added.

Unlike most central banks, Denmark does not adjust rates to control inflation. Its sole mandate is to keep the crown currency within a narrow exchange rate band against the euro, an objective it upholds through currency interventions and interest rate moves.

The move could also help dampen the country's overheated economy, characterised by low unemployment, high private consumption and a strong housing market.

"This will have great significance for the Danish economy and especially the housing market, where we expect higher interest rates to result in falling prices during the autumn," said Soren Kristensen, chief economist at Sydbank.

Denmark's largest bank, Danske Bank, said it would raise the variable interest rate on personal and business customer deposits by 50 basis points as a consequence of the central bank move.

Earlier on Thursday, the ECB raised its benchmark deposit rate by 50 basis points to zero percent, as concerns about runaway inflation trumped worries about growth, even while the euro zone economy is suffering from the impact of Russia's war in Ukraine.

The crown has traded above the midpoint of its peg since early 2021, around or below 7.44 crowns per euro, even despite several currency interventions and a rate cut in September last year aimed at weakening the crown.

It did not move following the central bank announcement.

The current account rate, which is the benchmark rate, and the certificate of deposit rate were each raised by 50 basis points to -0.1% from -0.60% as of July 22, the central bank said in a statement. The lending rate was also raised by 50 basis points to 0.05%, it said

Last month, the Swiss National Bank, known for having the lowest interest rates along with its Danish counterpart, raised its policy interest rate for the first time in 15 years in a surprise move.

(This July 22 story refiles July 21 story to correct lending rate increase in 11th paragraph to 0.05%, not -0.05%)

(Reporting by Jacob Gronholt-Pedersen and Nikolaj Skydsgaard Editing by Niklas Pollard and Mark Potter)

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