Denmark's central bank, Nationalbanken, cut its deposit interest rate Thursday following the European Central Bank's announcement of stimulus measures to combat deflation in the stagnant eurozone economy.

 

The bank cut the deposit rate by 0.15 percentage points to -0.35 percent but left its lending rate unchanged at 0.05 percent, in a move aimed at defending the Danish krone's pegged exchange rate with the euro.

 

See also: Denmark tries to quell euro peg rumours

 

On Monday the deposit rate, which was cut to below zero in September for the first time since 2012, had already been reduced to -0.2 percent from -0.05 percent.

 

"The central bank is demonstrating that it is ready to set interest rates as low as is needed," Nordea economist Helge Pedersen wrote on Twitter.

 

Pedersen echoed what his colleague Jan Storup Nielsen told The Local last week. 

 

“There’s definitely a scenario where we can see the Danish interest rate going to a record low,” Nielsen, a Nordea analyst, said. 

 

Analysts have speculated over the possibility of Denmark abandoning its policy of shadowing the euro in the wake of the turbulence caused by the ECB's aggressive monetary policy and Switzerland removing its cap of 1.20 francs to the European single currency last week.

 

Since the euros's creation in 1999, the krone has been pegged to the currency through an agreement known as the European Exchange Rate Mechanism (ERM II), under which the Danish currency can move only 2.25 percent up or down from a fixed rate of about 7.46 krone per euro.

 

The policy allowed the country to enjoy the benefits of a stable exchange rate with the currency of its main trading partner Germany, without entering the Economic and Monetary Union which the Danes rejected in a referendum on the Maastricht Treaty in 1992.

 

The Local Germany has much more on the ECB's decision to buy €60 billion of European debt every month from March 2015 until September 2016.