Danske Bank expects Danish rate cut in December to follow ECB

Jens Pedersen, analyst in FX & Commodities Strategy at Danske Bank, says the latest inflation data in the eurozone suggests the ECB will cut its key lending rate in December, and that Denmark will follow suit.

Data from Denmark’s central bank –  Danmarks Nationalbank – shows that it has not had to intervene in the currency market for three quarters now, in pursuit of stabilising the exchange rate between DKK and the euro. Denmark is not part of the eurozone, but effectively maintains a peg against its biggest trading partner by currency.

Pedersen notes that while there was some change in the relative exchange rate through October, the rate held firm to the policy exchange rate, meaning that Denmark’s exchange rate reserves remained virtually unchanged over the period; or some DKK491bn (€65.8bn), or just DKK200m lower than at the end of September.

The environment means that Danske Bank is not expecting any sudden moves by the country’s central bank to raise its interest rate unilaterally against the ECB. Quite the contrary; the Bank expects that the ECB is likely to cut its key lending rate by 0.25% in December, in response to latest inflation data. And this is likely to lead to a cut of 0.1% in the key Danish lending rate, which would take it down to 0.1%.

This would take the Danish lending rate to another record low.


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