September 4, 2014 / 4:08 PM / 3 years ago

UPDATE 1-Danish central bank follows ECB, turns deposit rate negative

(Adds analyst, background on currency)

COPENHAGEN, Sept 4 (Reuters) - The Danish central bank followed the lead of the European Central Bank to cut rates, and reduced its certificates of deposit rate on Thursday by 0.1 percentage point, turning it negative at -0.05 percent.

Analysts said earlier in the day they had expected the decision because the Danish crown is kept close to the euro and the central bank usually tracks ECB decisions.

But this is only the second time in its history that it has set a negative rate, after a stretch between July 2012 and April 2014.

The Danish crown is at its strongest in more than two years, having strengthened 0.01 crowns to the euro since the start of the month. The central bank aims to keep the crown trading close to a rate of 7.46038 to the euro.

The crown moved little after the rate decision, though it rose by about 0.03 percent in the minutes before the statement, having traded flat to 0.01 percent stronger though out the day. It was 0.03 percent lower at 7.4452 crowns per euro at 1440 GMT.

“The central bank has only one objective, to maintain the fixed exchange rate and avoid a too-strong crown,” said Nordea Chief Economist Helge Pedersen.

“This means that banks again have to pay for having a deposit surplus in the central bank. It’s clear that it has a negative impact on commercial banks,” he said.

However, the rate tweak lower should help the country’s sagging economy, which shrank in the second quarter of this year, casting doubt on government economic forecasts.

“A marginally lower interest rate in Denmark will not be something that turns the economy upside down but it will support the immediate fragile economic development,” said Jens Nærvig Pedersen, a senior analyst at Danske Bank.

The central bank kept other rates, including the lending rate, flat.

The ECB cut its main refinancing rate to 0.05 percent from 0.15 percent and drove the overnight deposit rate deeper into negative territory, now charging banks 0.20 percent to park funds with it.

Reporting by Shida Chayesteh and Sabina Zawadzki; editing by Gwladys Fouche, Larry King

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