January 26, 2015 / 2:55 PM / 5 years ago

Danish central bank will not lift current account cap to help banks

COPENHAGEN, Jan 26 (Reuters) - Denmark’s central bank said on Tuesday it did not plan to lift the amount of cash commercial banks can keep in its current account after increasing the cost to them of holding money in deposits last week.

The central bank cut the certificate of deposit rate — its main policy rate — on Monday and on Thursday last week to defend the crown currency’s peg to the euro, taking it from -0.05 percent to -0.35 percent.

That means banks needing to store money with the central bank for liquidity purposes are effectively charged 0.35 percent for their deposits.

By contrast, the current account rate was left at zero, meaning it is now much cheaper to park money there than in the deposit account.

But unlike the last time the certificate of deposit rate was negative, in 2012, the central bank said it would not raise current account limits to help commercial banks shoulder the costs of depositing money.

“We have no plans for adjusting current account limits,” a spokesman wrote in an email to Reuters. “We are feeling quite satisfied with the current account limit.”

Banks can keep a total 37.5 billion Danish crowns ($5.7 billion) in the current account, with a ceiling of 5.25 billion crowns apiece set for Denmark’s two biggest financial institutions, Danske Bank and Nordea .

With around 150 billion crowns placed in the central bank’s deposit account last week, the annual cost to the banking sector of the -0.35 percent rate will be 525 million Danish crowns ($79 million), the Danish Bankers Association told Reuters.

“It is a bill the banks are forced to send on to their customers,” the lobby group’s vice president, Niels Storm Stenbaek, said.

$1 = 6.6065 Danish crowns Reporting by Ole Mikkelsen; Editing by Catherine Evans

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