Denmark's central bank cut its interest rates by a quarter of a point Thursday, which echoed the European Central Bank's measures hours before. This is the first time in the nation's history that its deposit rate is below zero.
The certificate of deposit rate was cut by a quarter by the Danish central bank that will now yield negative 0.2 percent. The central bank argues that the Danish economy is quite strong and investors are willing to pay the Danish government one-fifth of a percentage point for the nation to hold their money.
Furthermore, the central bank also slashed its lending rate from 0.45 percent to 0.20 percent. The policy still maintains a charge on its loans, but the number is substantially low.
“In connection with the introduction of negative interest rate on certificates of deposit the current account limits will be revised upward,” the bank said in a statement.
Since the CD rates are now in the negative, banks will now be required to pay the central bank to deposit money with it, but central bank Governor Nils Bernstein told Reuters that it would not incite an intense burden on the banks. He noted that the negative CD rate’s cost to banks would be an estimated $33.28 million per year.
“In isolation, it is a burden on the banking system,” said Bernstein. “Their deposits for the time being are bigger than what they have borrowed from the central bank, so overall this is an increased burden."
The Wall Street Journal notes that investors seeking safe haven have been quite willing to accept negative rates on fresh government debt in order to escape from the euro zone debt crisis, such as in nations like Denmark and Switzerland, where it pays negative one percent for Swiss debt.
Denmark has a national debt totalling $128 billion and is expecting a budget deficit of $12.39 billion next year. It has an unemployment rate of 7.6 percent and has the 32nd largest economy with much of its industries dealing with metals, agriculture, chemicals and construction.