December 7, 2015 / 1:23 PM / 4 years ago

UPDATE 1-Danish central bank governor says rates could go lower

(Adds quotes from central bank governor, context)

COPENHAGEN, Dec 7 (Reuters) - The Danish central bank will not hesitate to cut its key deposit rate further from a current record low -0.75 percent if needed, central bank governor Lars Rohde said on Monday.

“We have not seen any sign that interest rates can’t be lower,” Rohde told Reuters on the sidelines of an annual meeting for Danish banks.

The central bank kept its key certificate of deposit rate unchanged at -0.75 percent last week even after the European Central Bank, whose policy movements it usually tracks, cut its own deposit rate.

Rohde said it was a step into the unknown when, 10 months ago, the central bank sharply cut the key rate. Only Switzerland had shortly before introduced similarly low interest rates.

“The low interest rates have had the desired effect. The crown currency has been stable against the euro and there have not been any signs of hoarding of cash,” Rohde said.

Denmark tends to move in lock-step with the euro zone’s central bank due to its crown currency peg to the euro, but it cut its certificate of deposit rate four times in less than three weeks in January and February when the crown was forced upward.

“The central bank has the will and ability to defend the fixed-exchange-rate policy,” Rohde said and added: “We have lots of patience if it again becomes necessary to intervene to prevent the crown currency strengthening.”

The central bank’s foreign currency reserves peaked at a record of 737.2 billion Danish crowns ($106.8 billion) in March as it bought foreign currency to flood the market with the crown to keep it from appreciating outside a narrow corridor.

Since March intervention has gone the other way, buying up 230 billion crowns to stop the currency from weakening too much, but the pace of intervention has slowed, the central bank governor said.

Currency reserves fell to 484 billion crowns in November.

Under the European Union’s Exchange Rate Mechanism (ERM2), Denmark, an EU member but euro zone outsider, has agreed to keep the crown at 2.25 percent either side of the parity rate of 7.46038 crowns to the euro. In practice, the crown has not moved more than 0.5 percent on either side.

$1 = 6.9046 Danish crowns Reporting by Ole Mikkelsen; Editing by Catherine Evans/Ruth Pitchford

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