UPDATE 1-Danish central bank ends negative deposits rates

Thu Apr 24, 2014 11:26am EDT

* Denmark's central bank increase rate on certificates of deposit

* Rate move ends negative deposit rate regime (Adds details, analyst comments)

By Ole Mikkelsen

COPENHAGEN, April 24 (Reuters) - The Danish central bank on Thursday lifted its rates on certificates of deposit into positive territory for the first time since mid-2012, boosting the crown against the euro.

It lifted the rate by 15 basis points to 0.05 percent.

The Nationalbank, whose policy cornerstone is to keep the local currency steady within a narrow band against the euro, kept the lending rate, the discount rate and the current account rate unchanged.

"The short term rates in the euro area which are higher than the equivalent Danish rates have increased. This increase has tended to weaken the Danish crown," the central bank said in a statement.

The crown rose to a five-week high against the euro after the rate rise, with the latter falling to a low of 7.4628, its lowest level since March 17.

The central bank aims to keep the crown trading close to rate of 7.46038 against the euro.

"We think that the downward pressure on the (crown) should now abate," said Jessica Hinds, European economist at Capital Economics in London.

Nationalbank introduced a negative secondary rate for the first time in its history when it cut the deposit rate by 25 basis points to minus 0.20 percent in July 2012, when investors fearful of more turmoil in the euro zone were piling into non-euro assets.

Denmark tracked European Central Bank rates consistently until market concerns about tensions in the euro zone ratcheted up towards the middle of 2012.

"The move reflects the fact that we are heading towards a normalisation of both Danish and international economics, which basically is a sign that we are going to put the crisis behind us," economist Peter Bojsen Jakobsen from Sydbank wrote in a note to clients.

Hinds, from Capital Economics, said the bank would be prepared to intervene for longer and hold fire on an independent rate rise given the strong chance that the European Central Bank will loosen monetary policy further.

"However, it seems that the ECB did not act quickly enough for the Nationalbank's liking," she wrote in a note to clients.

Following the return to a positive interest rate, the monetary counterparties' current-account ceiling will be reduced to 38.5 billion Danish crowns ($7.13 billion) from 67.4 billion crowns.

The ceiling was raised in effort to reduce the commercial banks costs for excess liquidity which is placed in the central bank. ($1 = 5.3989 Danish Crowns) (Editing by Jeremy Gaunt)

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