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Danmarks Nationalbank is responsible for monetary policy in Denmark. The objective of monetary policy is to keep the krone stable vis-à-vis the euro. Danmarks Nationalbank conducts monetary policy by setting the monetary policy interest rates, i.e. the discount rate, the current-account rate, the lending rate and the rate of interest on certificates of deposit. The interest rates are determined by the Board of Governors of Danmarks Nationalbank, and can be changed as required at any time.
Danmarks Nationalbank can influence the krone rate by adjusting its monetary policy interest rates. When the foreign-exchange market is calm, Danmarks Nationalbank usually adjusts its interest rates in step with the adjustments of the monetary policy interest rates of the European Central Bank. In a situation with upward or downward pressure on the krone or a sustained inflow or outflow of foreign currency, Danmarks Nationalbank unilaterally changes its interest rates in order to stabilise the krone.
Danmarks Nationalbank conducts its monetary policy via the monetary policy counterparties, comprising banks and mortgage-credit institutes. The monetary policy counterparties can make overnight deposits with Danmarks Nationalbank, and participate in Danmarks Nationalbank's weekly and monthly market operations. In the weekly market operations the counterparties can obtain 7-day loans against collateral, or make 7-day deposits by purchasing certificates of deposit. In the monthly market operations the counterparties can obtain 6-month loans against collateral. The interest rate on 6-month loans is variable, set at Danmarks National-bank's 7-day lending rate. The monetary policy counterparties are free to determine the volume of loans at the weekly and monthly operations. Danmarks Nationalbank can also when and to the extent it is needed perform liquidity-adjusting deposit and lending operations in kroner. The rate of interest and maturity of the operations will reflect market conditions.
The collateral basis, which is applied to obtain loans in Danmarks Nationalbank, consists of securities, mainly government and covered bonds, and banks' own credit claims of good quality.
Danmarks Nationalbank's interest rates guide the short-term interest rates in the money market in Danish kroner. The money market is the market for short-term loan agreements and interest-rate contracts, primarily between banks. A well-functioning money market is important for ensuring a clear transmission from Danmarks Nationalbank's monetary policy interest rates to the short-term market rates. The interest rates in the money market are the basis for the interest rates which the banks offer their customers for deposits or lending. |
