Denmark Hikes Key Rate Less Than ECB Under New Governor

(Bloomberg) -- Denmark’s Nationalbanken raised its benchmark interest rate less than the European Central Bank as its new governor seeks to weaken the krone and defend the peg to the euro.

The central bank in Copenhagen, which doesn’t hold scheduled meetings, raised the current account rate to 2.1% from 1.75%, it said on Thursday. The krone was little changed against the euro at 5:07 p.m. in Copenhagen.

The 35 basis-point hike comes on the second day of the job for Christian Kettel Thomsen, who took over from the retiring Lars Rohde. It followed hours after a 50 basis-point hike by the ECB in Frankfurt. Danish economists were split on whether the Denmark would match the ECB hike or raise by less. 

“The krone exchange rate is on the strong side,” Jeppe Juul Borre, chief economist at Arbejdernes Landsbank A/S, said in a note. “By giving a little leash to the ECB’s interest rate, one also relieves some pressure on the krone.”

The new governor is dealing with a krone that since May 2020 has traded on the strong side of its 7.46038 parity against the euro amid a record current-account surplus. 

The central bank said in a separate statement that it dumped 13.2 billion kroner ($1.9 billion) on the market in January to weaken its currency. That follows interventions in the four previous months when Nationalbanken also sold kroner.

Denmark, which was the first country in the world to impose negative interest rates in 2012, has now raised borrowing costs five times in less than seven months, following ECB hikes. In October, it also raised less than the ECB to address the krone’s strength.

“There’s fundamental pressure on the Danish krone, pushing it stronger,” Las Olsen, chief economist at Danske Bank A/S, said in a note. “Denmark has a very large current account surplus, and the contrast to the euro area has only become sharper in the past year as energy prices have hurt our southern neighbors much more than us.”

(Updates with analyst comments, currency-market intervention from fourth paragraph)

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