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Denmark's central bank cuts key interest rate to historic low

FILE PHOTO: The Danish central bank, also known as Danish Nationalbank, is seen in Copenhagen, January 22, 2015. REUTERS/Fabian Bimmer/File Photo

COPENHAGEN (Reuters) - Denmark’s central bank on Thursday cut its key deposit rate by 10 basis points to minus 0.75%, a record low among developed economies, following a move by the European Central Bank earlier in the day to lower rates and relaunch a bond purchase scheme.

The bank, which usually moves monetary policy in lock-step with the ECB to keep its currency pegged to the euro, left all other rates as well as the current account limits unchanged.

“The interest rate reduction is a consequence of the reduction by the European Central Bank of its monetary policy rates by 0.10 percentage point,” the central bank said in a statement.

The cut brings the Danish benchmark to the level where it was before the last rate change in January 2016 and on par with the -0.75% key rate currently in place in Switzerland.

The triple-A-rated country was among the first to introduce negative interest rates in 2012 to keep investors from hoarding its safe-haven currency, which is pegged to the euro. It has since seen mortgage rates fall to record lows and its entire government bond yield curve dip into sub-zero territory.

While mirroring the ECB, which earlier on Thursday cut its main deposit rate by 10 basis points to -0.5%, the Danish central bank did not match the stimulus package announced by the ECB.

Analysts have said that under such a scenario they would expect more investors to place money in Danish bonds, which in turn could strengthen the crown.

The Danish crown EURDKK= was trading at 7.4623 to the euro at 1512 GMT, near the parity rate of 7.46038.

If the ECB cuts rates again in December, analysts at Nordea said they expect the Danish central bank to cut by another 10 basis points to a record low of -0.85% “in order to avoid undesired appreciation of the Danish crown against the euro.”

Reporting by Jacob Gronholt-Pedersen and Nikolaj Skydsgaard; Editing by Rosalba O’Brien and Andrew Heavens