June 17, 2020 / 11:41 AM / 22 days ago

UPDATE 1-Danish central banker expects prolonged spell of low rates

(Adds central bank governor comments, background)

By Nikolaj Skydsgaard

COPENHAGEN, June 17 (Reuters) - Danish interest rates will remain low for a long time, the governor of Denmark’s central bank said on Wednesday, emphasising its benchmark rate was in line with the European Central Bank’s.

Unlike most other central banks, Denmark has not lowered its key rate to soften the economic impact of the coronavirus pandemic. But it was one of the first countries to introduce negative rates, in 2012, and still has one of the lowest deposit rates in the world at a negative 0.60%.

“Everything indicates that we are looking into a period of ‘low for long’, that is low interest rates for a long time. And if you look at the market expectations, they also reflect that,” central bank governor Lars Rohde told reporters on Wednesday.

The Danish central bank actually raised its deposit rate in March to alleviate downward pressure on the country’s currency, the crown, which is pegged to the euro.

But, Rohde pointed out, “we still have a monetary policy rate that is 10 basis points lower than it is in the ECB, and that is our aim,” Rohde said.

The central bank’s principal task is to protect the currency peg by keeping the crown within a narrow band against the euro, either through interventions in the currency market or by changing interest rates.

The crown has been stable since the rate increase hike in March, Rohde said.

Also on Wednesday, the central bank predicted the Danish economy would shrink by 4.1% this year, but it said it expects a partial recovery next year.

The prognosis is roughly in line with a forecast presented by the Danish Economic Council on Tuesday, foreseeing a contraction of 4.4%. (Reporting by Nikolaj Skydsgaard and Stine Jacobsen; editing by Larry King)

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