May 10, 2016 / 10:11 AM / 3 years ago

Denmark's negative rates pose risk of housing bubble, says OECD

COPENHAGEN, May 10 (Reuters) - Negative interest rates could create a housing bubble in Denmark, leaving households exposed to the risk of unsustainable debts once borrowing costs rise again, the OECD said on Tuesday while cutting its growth forecast for the country.

Along with central banks in Switzerland, Sweden and Japan, Denmark has cut base rates deep into negative territory. They currently stand at -0.65 percent, having been as low as -0.75 percent until January.

While negative rates have had a limited impact on economic growth in Denmark, there has been an inflow of money into Danish assets, including real estate.

“The very low interest rate environment may contribute to the building up of risks, notably in the housing market,” the Organisation for Economic Co-operation and Development said in a report on Denmark’s economy.

Much of Danes’ wealth lies in housing and they are the most indebted among members of the OECD. Those debt levels should be reduced, the organisation said.

“Negative interest rates are contributing to the risk of building up a new bubble in the housing market and may be encouraging excessive risk-taking by households and the financial sector,” it said.

The organisation cut its economic growth forecast for 2016 to 1 percent from 1.8 percent, citing Denmark’s fragile recovery and GDP per capita still below pre-crisis levels.

Reporting by Jacob Gronholt-Pedersen; editing by John Stonestreet

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