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Danish central bank raises interest rate by 0.5 percent

Denmark’s central bank Nationalbanken raised its interest rate by 0.5 percent on Thursday in response to a similar move by the European Central Bank (ECB).

Published: 16 March 2023 17:48 CET

Danish central bank raises interest rate by 0.5 percent

A file photo of Denmark's central bank, Nationalbanken. File photo: Jeppe Bjørn Vejlø/Jeppe Vejlø/Ritzau Scanpix

The Danish central bank confirmed the decision in a statement after the ECB earlier on Thursday increased its rate by the same amount, bringing it up to 3 percent.

The latest raise is the sixth time within the last year that the ECB has put its interest rate up.

The new rate is the highest set by the ECB since the Global Financial Crisis in 2008.

The Danish National Bank’s interest rates are slightly lower than the ECB’s — 2.6 percent for deposits and 2.75 percent for loans following Thursday’s increases. That is because Nationalbanken increased its interest rates by 0.15 percent less than the ECB the last time the rates were raised, at the start of February. Similarly, it raised its rate by slightly less than the ECB in December.

There is nothing unusual about the Danish central bank’s decision to follow the ECB in raising the interest rate, however.

Earlier this week, Nationalbanken called for political measures to keep a rein on inflation as it said wage increases given to people under the Danish labour system in 2023 and 2024 could help to keep inflation levels up.

It also predicted house prices are set to fall by almost 10 percent this year.

One effect of raised interest rates is that people who have variable rate mortgages could find themselves paying more for their loans.

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Better-than-expected Danish economy frees up 11 billion kroner for budget

“The long and the short of it is that the Danish economy is rock solid,” Nicolai Wammen told Denmark’s Ritzau newswire after the announcement. “But we also live in a world of great uncertainty: it is important to remember that only a year and a half ago we had the highest inflation in 40 years.”

Wammen said that better-than-expected employment figures had pushed the ministry to adjust its estimate of its spending leeway under Denmark fiscal rules by 11.25 billion kroner between 2024 and 2030. As a result, he said, he planned to earmark an addition 4.1 billion kroner for public spending in 2025.

“Over 3 million are in employment, and the progress in employment has been particularly high in the private sector,” he said in a press release. “At the same time, unemployment is low.”

He pointed to the increase in the number of labour migrants coming to Denmark as a result of the government’s policies, adding that more reforms would be needed in future to increase the labour supply due to a demographic situation which meant the country was about to see a larger number of people retiring than coming into the system.

“With the reforms that have been implemented and are underway, the government has increased the labor supply by 29,000 full-time workers in 2030. The government aims to increase the labor supply by 45,000 full-time workers,” he said.

The increased spending leeway, he said, would make it easier for the government to take Denmark through some of the major changes it needs to make in the coming years.

“This gives us an even stronger foundation for handling the challenges we face. At the same time, we must also continue to be aware that we still need more hands and minds in both the public and private sectors if we are to ensure growth, welfare, green transition and our security in Denmark, among other things,” he said.

Wammen told the public broadcaster TV2 that much of the extra money would be used to increase funding to municipalities and the regional governments who run Denmark’s healthcare system.

But also warned that it was important that the government does not shift to a more expansive economic policy that breathed life back into inflation.

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