Denmark cuts interest rates again to defend krone's euro peg

Denmark's central bank cut its key policy rate on Thursday for the fourth time in three weeks, dropping it to -0.75pc, and said it would continue to defend the crown currency's peg to the euro.

The cut of 25 basis points was bigger than the three cuts of 15 basis points each and brought the rate to the same level as in Switzerland.

Analysts had expected such a move, which makes owning Swiss and Danish assets relatively equally attractive.

It left its other rates unchanged.

In a rare move, the central bank also issued a brief statement from Governor Lars Rohde.

"The fixed exchange rate policy is an indispensable element of economic policy in Denmark -- and has been so since 1982," Rohde said.

"The Danish National Bank has the necessary instruments to defend the fixed exchange rate policy for as long as it takes. There is no upper limit to the size of the foreign exchange reserve."

As well as cutting rates, the central bank has spent over 100bn Danish krone (£10bn) intervening in the foreign currency markets in January. But because it is selling crowns to buy foreign currencies, that builds up its reserves.

Last week, the central bank said the finance ministry would suspend government bond issuance as another way of reducing demand for the crown and forcing down yields on existing debt, which again should make Danish assets less attractive.

"It is not a question of whether the central bank will maintain the close peg to the euro but purely a question of how much interest rates will be slashed and how much currency reserves will swell before the bank manages to stabilise the situation," said Nordea Senior Analyst Jan Storup Nielsen.

"We expect the central bank to stabilise the situation relatively quickly as it has a strong interest in doing so to avoid a self-sustaining speculative spiral picking up speed," he said in a note.