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UPDATE 1-Danish c.bank cuts leading interest rate by 75 bps

Published 12/04/2008, 10:42 AM
Updated 12/04/2008, 10:44 AM

(Adds details, analyst)

By Kim McLaughlin

COPENHAGEN, Dec 4 (Reuters) - Euro zone outsider Denmark's central bank lowered its key one-week interest rate by 75 basis points on Thursday, following a 0.75 percentage point cut by the European Central Bank (ECB) earlier in the day.

The Danish central bank, Nationalbanken, lowered its one-week certificates of deposits and lending rates to 4.25 percent from 5 percent.

"It confirms our view that the central bank in light of the continued uncertainty in financial markets doesn't feel comfortable in reducing the insurance spread against pressures on the crown," said Handelsbanken Chief Economist Jes Asmussen.

Usually, the national bank changes its interest rates the same day and by the same margin as the European Central Bank, but last month it raised rates unilaterally twice to defend the crown, which is pegged to the euro in a narrow band around a central rate of 7.46038 in the ERM-2 grid.

The spread to the equivalent European Central Bank rate remains at 1.75 percentage points after the ECB cut rates to 2.5 percent on Thursday. The gap was only 35 basis points at the start of October.

Nationalbanken lowered the less important discount rate to 3.50 percent from 4 percent.

Denmark's inclusion in the ERM-2 includes a commitment to unlimited intervention credit between the ECB and the Danish central bank.

(Copenhagen Newsroom; Editing by Ruth Pitchford)

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