UPDATE 1-Danish c.bank cuts rates, leaves door open for more

Thu May 2, 2013 11:25am EDT

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COPENHAGEN, May 2 (Reuters) - Denmark's central bank on Thursday left the door open to future rate cuts after it chose to only partly follow a 25 basis point reduction by the European Central Bank (ECB) earlier in the day.

The Nationalbank, which aims to keep the crown currency steady within a narrow band against the euro, cut its main lending rate by 10 basis points to 0.20 percent, a new record low.

"The low monetary policy rates leave a limited leeway for a reduction of Danmarks Nationalbank's lending rate," the Nationalbank said in a statement.

"The Nationalbank has previously indicated that their options for a lower lending rate is limited," said Handelsbanken chief economist Jes Asmussen in a note.

"One of the reasons that the Nationalbank chose not to cut interest rates deeper, could be that it wants to keep the door open for further rate cuts from the ECB," Asmussen said.

The Danish central bank, which makes its policy announcement at 1400 GMT, tends to move on rates in lockstep with the ECB to hold the crown within a narrow trading band against the euro.

But the two banks diverged in January, when the Nationalbank raised the lending rate by 10 basis points from a record low of 0.2 percent. ECB base rates had been unchanged for 10 months.

"We can expect that the period with very low Danish interest rates will continue for quite a while," said Danske Bank economist Jens Pedersen.

He added the European Central Bank was not expected to raise rates until mid-2015 and that the Danish crown currency was comfortably stable below the central parity.

"There is no individual Danish rate hikes in sight in the near future," Pedersen said. (Reporting by Copenhagen newsroom, writing by Mette Fraende; Editing by Toby Chopra)

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