Denmark Central Bank Cuts Rate

        Denmark's central bank on Monday became the latest European country to cut its interest rates as it attempted to dampen investor interest in the Danish krone ahead of the European Central Bank's policy meeting on Thursday.
        Nationalbank cut its deposit rate to minus 0.2% from minus 0.05%, and its lending rate to 0.05% from 0.2%.
        The krone has strengthened against the euro after a rate cut by the Swiss central bank last week. The Danish central bank is counting on the rate reduction to weaken the attractiveness of Danish currency denominated assets to investors seeking other triple-A rated places in Europe to place their money.
        Nationalbank's decision comes ahead of the ECB's meeting at which the governing council is expected to launch a large-scale program of government bond purchases.
        Those purchases will increase the supply of euros, and likely cause the currency to depreciate further against currencies like the krone.
        Nationalbank's main policy role is to maintain the stability of Denmark's currency against the euro to provide stability for the nation's exporters and keep inflation low and stable. It normally tracks interest rate moves by the ECB to achieve those goals, but at times it makes independent policy moves.
        Nordea currency analyst Aurelija Augulyte said a Danish rate cut was "inevitable". "The pressure on the central bank is just too strong," she said, adding that the Danes may have to act again soon.
        "The bank decided to act ahead of the ECB meeting on Thursday because there is no point waiting. I wouldn't be surprised, however, if it acted again on Thursday if this move proves insufficient," she said.
        Other central banks in the region will also be watching the ECB and the currency markets closely Thursday.
        Unlike Denmark, Sweden has a free floating currency but it can ill afford a bout of currency strength against the euro with inflation around zero, well below the central bank's 2% target.
        Neil Mellor, a strategist at BNY Mellon in London noted Sweden's Riksbank talk about unconventional measures and said he wouldn't be surprised if Norway's central bank, Norges Bank, is pressured into acting too.
        "This is currency wars, " Mr. Mellor said.
        Write to Charles Duxbury at charles.duxbury@wsj.com and Josie Cox at josie.cox@wsj.com
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        (END) Dow Jones Newswires

        January 19, 2015 20:40 ET (01:40 GMT)

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