Reuters: Financial Services and Real Estate: UPDATE 2-Denmark, Switzerland look towards negative rates

Reuters: Financial Services and Real Estate Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

UPDATE 2-Denmark, Switzerland look towards negative rates May 31st 2012, 16:55 Thu May 31, 2012 12:55pm EDT * Danish central bank cuts rates by another 15 basis points * Bank says has tools to handle negative interest rates * SNB's Danthine: Limited negative rates may not hurt (Adds details, quotes, crown rate) By John Acher and Tom Miles COPENHAGEN/GENEVA, May 31 (Reuters) - Denmark's central bank cut interest rates for the second time in a week on Thursday and pointed - along with a top Swiss central banker - to the possibility of rates going negative, as Europe's non-euro nations struggle with the slide in the common currency. The euro has tumbled as the debt crisis engulfs Spain and on fears Greece may leave the bloc, creating headaches for non-euro zone central banks as investors pour money in in a dash for safe havens, driving up their currencies and hurting their exporters. A top Swiss central banker said on Thursday that limited use of negative interest rates was "not inconceivable", although he declined to say if the Swiss National Bank saw them as a viable weapon for fighting the franc's appreciation. The Danish central bank, which runs a fixed exchange-rate policy to keep the crown within a tight band versus the euro, said it had the instruments to cope with negative interest rates if that became necessary, without elaborating. The bank, which usually cuts rates in tandem with European Central Bank moves, also cut its lending rate to an all-time low of 0.45 percent from 0.60 percent, where it had been since a 10 basis-point cut on Thursday last week. "When the Nationalbank chooses to go it alone already this week, it suggests that there has been massive buying interest in Danish crowns in the past days," said Nordea senior analyst Jan Storup Nielsen. He added that Nordea expected the Nationalbank to "swing the rate sabre" again if the ECB were to cut rates next Wednesday. "Whether the Nationalbank will choose to go even further than the ECB in connection with Wednesday's meeting is not certain as that will largely be decided by how the crown behaves in the coming days," Nielsen said. "But with today's surprising rate reduction that certainly cannot be ruled out." NEGATIVE RATES The Danish central bank also cut its certificates of deposit (CD) rate by 15 basis points to 0.05 percent and lowered its current account rate by 15 bps to 0.0 percent. That creates the real possibility of rates going negative - meaning banks would effectively have to pay if they wanted to deposit money at the central bank - as the Danish central bank usually changes its official rates simultaneously. The crown softened just slightly on the rate cut to around 7.4318 from around 7.4312 just before the bank's announcement, but strengthened back to 7.4311 as of 1530 GMT. Heavy inflows into Danish assets as investors diversify out of the euro have driven the crown to more than five-month highs, levels similar to where the bank cut rates in December. The bank's mandate is to keep the crown within a band around its central parity of 7.46038 per euro. Under the ERM II system, the crown is permitted to fluctuate by plus or minus 2.25 percent around that parity, though in practice the central bank keeps an even tighter range. EU member but euro outsider Denmark changes rates for the sole purpose of keeping the crown currency within a tight band against the euro. "The size of rate changes is always based on a concrete assessment of market conditions with a view to keeping the crown tightly around its central parity rate. And that is also the case this time," central bank Governor Nils Bernstein said in an emailed response to questions from Reuters. "Today's decision to reduce rates comes against the background of significant interventions in the foreign exchange market," he said. Similar pressure on its currency led Switzerland's central bank to impose a ceiling of 1.20 per euro on the franc last year. Swiss National Bank Vice Chairman Jean-Pierre Danthine on Thursday suggested the country might also consider letting rates go negative to cap the franc. The SNB's benchmark rate target is already virtually zero. "Check what happened in Sweden - for a very brief time they had negative interest rates, so it's not inconceivable," Danthine told reporters at an event in Geneva. In July 2009, Sweden's central bank decided to cut its repo rate to 0.25 percent, meaning its deposit rate became a negative 0.25 per cent. The measure was in place until the central bank hiked rates in September 2010. Pointing to the 50 basis point spread between the two Swedish rates, Danthine said he was speculating that up to a certain level negative interest rates would not hurt. "As it's our role we naturally our preparing scenarios in addition to our base scenario. In this context we aren't excluding any measures," he also said. The head of the SNB also said this week that Switzerland was drawing up plans for emergency measures including capital controls in case the euro collapses, although it does not expect to need them. (Reporting by Teis Jensen and Ole Mikkelsen in Copenhagen, and Tom Miles and Stephanie Nebehay in Geneva; Writing by Hugh Lawson and Catherine Bosley) Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions