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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 market operations. In the weekly market operations the counterparties can obtain 7-day loans by pledging securities as collateral, or make 7-day deposits by purchasing certificates of deposit.
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.
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