Peter Levring and Frances Schwartzkopff write that Denmark’s central bank has taken an unusual step to defend the krone from capital inflows similar to those experienced earlier by Switzerland.
The central bank has kept its deposit rate at minus 0.2 percent since July, in an effort to fight off a capital influx and maintain the krone’s peg to the euro.
Deposits held at the central bank are charged a fee of 0.2%, rather than paid interest as in the US.
At the same time, the industry is still paying its customers to hold their deposits in an effort to attract stable funding and reduce reliance on wholesale financing. That’s turned deposit banking in Denmark into a losing business.
The measure would encourage banks to increase lending, loosening credit standards to avoid the charge on excess reserves. It would also reduce the rate paid on call deposits, while increasing bank competition for more stable time deposits.
via Nationalbanken Defends Sub-Zero Bemoaned by Banks: Nordic Credit – Bloomberg.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
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Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
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