Official Danish interest rates are now negative.
First some data from the Nationalbanken (Danish Central Bank):
Lending rate : +.2%
Deposit rate: -.2%
For starters: The lowering of interest rates is a result of the European Central Bank (ECB)’s lowering of rates earlier today. But that does not explain the previous Danish lowering of interest rates.
The normal statements from the propaganda offices of the banks are that the Spanish situation is leading to a flight towards the Danish Krone (DKK) and Danish securities. While not a direct lie it is certainly a truth with modifications.
The Danish Central Bank intervened in the currency markets in June with around 1½ billion EUR. That innervation is understandable. For one thing, the EUR has over the last couple of years been devalued with respect to the USD by approximately 20%. Not only that, but when you export oil and pork, that command nice rising prices – there is bound to be some scarcity of DKK.
There is, however, another and less flattering explanation (for the banks):
The deposits in the Danish CB have doubled since December 2011 to 25-30 bio. EUR – in this context the pitiful 1½ bio. EUR: Chicken feed.
As the graph shows the interbank rates have dropped, but it is unlikely that there is any significant volume in the interbank market. The bank that has borrowed in ECB and the Danish CB is Danske Bank A/S (PINK:DNSKY) – where I suspect that 2 bio. EUR (out of approximately 8 bio. EUR) is a brokered credit to BRF mortgage bank.
Nearer to the truth is that all the banks have lost confidence in the major banks – and especially their mortgage banks. Real estate bonds of the variable interest, deferred payment kind are unsellable, which means the issuer has to buy them themselves – that makes you a bit squeezed for cash, when nobody would dream of lending you money.
The deposit rate has been symbolic for “ages” and the 2 year sovereign bond has been in negative territory over the last month. Danske Bank A/S (PINK:DNSKY) can borrow cash nowhere else but in the CB.
The Danish CB has announced the sale of 10 plus bio. EUR above and beyond the state’s financing needs.
The real reason behind this low interest rate is to keep Danske Bank from having its till closed. But then the truth doesn’t sit well with the “propaganda ministry” of Denmark.
Danske bank has a history of covering things up, including their refusal to co-operate with Moody’s Corporation (NYSE:MCO) several weeks ago. With assets twice the size of Danish GDP, Danske Bank is too big to fail, but too big to save. The Danish Government seems to think the best approach is to cover up the situation.