Denmark’s central bank raises key rate to highest level in 13 years

COPENHAGEN (Reuters) – Denmark’s central bank raised its key interest rate by 0.60 percentage points to 1.25% on Thursday to its highest level in thirteen years, following a rate hike earlier in the day by the European Central Bank.

Denmark, the first country in the world to impose negative rates in 2012, last month broke with a decade-long experiment of negative interest rates as it lifted its key rate into positive territory.

“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.

Earlier on Thursday, the ECB raised its benchmark deposit rate by 75 basis points to 1.5% and signalled further hikes.

Denmark’s move puts its main interest rate at its highest level since August 2009.

Unlike most central banks, the Danish central bank’s sole mandate is to keep the crown currency stable against the euro, an objective it upholds through currency interventions and interest rate moves.

Normally, the central bank follows the ECB’s rate moves, but this time it raised rates less, Danske Bank chief economist Las Olsen said in a note.

“This time they have chosen a slightly smaller interest rate increase because they actually want a slightly weaker crown,” Olsen added.

The crown currency weakened slightly after the central bank’s move, trading at 7.44 crowns to the euro at 1513 GMT.

Denmark’s current account rate, which is the benchmark rate, and the certificate of deposit rate were each raised by 60 basis points to 1.25% from 0.65% with effect from Oct. 28. The lending rate was also raised by 60 basis points to 1.4% from 0.8%.

(Reporting by Nikolaj Skydsgaard and Jacob Gronholt-Pedersen, editing by Stine Jacobsen)