Friday, August 24, 2012

World Watches As Danes Venture Below Zero


Fri., August 24, 2012
Of all the many striking policy measures taken since the financial crisis, one of the most extraordinary has gone almost unremarked – the introduction of negative official interest rates by Denmark, the Financial Times reported. In an attempt to maintain its strict currency peg to the euro, the Danish central bank lowered its main deposit rate for banks – the certificate of deposit or CD rate – to -0.2 per cent last month. The Nationalbanken felt it had little choice. Investors flocked to Denmark in search of a haven outside the eurozone – one that has no currency risk with the euro and offers cheap protection against a break-up of the single currency. The move to negative rates is being watched closely by central banks around the world. “We have never been so popular,” laughs one Danish policy maker. Apart from a brief move by Sweden in 2009-10, negative official rates are something of a novelty. But others may soon follow suit, with the European Central Bank recently cutting its deposit rate to zero and warning that it could go negative. Policy makers in the UK and elsewhere in Europe have expressed interest in the idea as a potential way of forcing banks that are currently hoarding cash to start lending again.

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