Monetary-policy instruments


Danmarks Nationalbank conducts monetary policy by setting the monetary-policy interest rates. In practice, this is done via the lending and deposit facilities made available by Danmarks Nationalbank to banks and mortgage banks – the monetary-policy counterparties. The most important facilities are the current accounts and the weekly open market operations.

The monetary-policy counterparties have access to monetary-policy instruments, i.e. they can place liquidity at Danmarks Nationalbank in the form of demand deposits (current-account deposits) and they can raise loans and make deposits with longer maturities via Danmarks Nationalbank's open market operations. All monetary-policy loans are secured, which means that the counterparty must pledge collateral. When obtaining loans from Danmarks Nationalbank the monetary counterparties can pledge colleteral by way of securities - primarily government and mortgage bonds. Read more about the collateral basis. Access to and use of accounts at Danmarks Nationalbank are determined in Danmarks Nationalbank's terms and conditions for accounts.

Current-account deposits

Each monetary-policy counterparty holds a current account at Danmarks Nationalbank. Deposits in these accounts may, without notice and at the initiative of the counterparty be used for payments, e.g. for transfers between counterparties. The current accounts also function as settlement accounts for Danmarks Nationalbank's lending to and deposits from counterparties and for large payments to and from the central government. Current accounts accrue interest at the current-account rate.
 
A current-account limit has been set, which is a ceiling on the monetary-policy counterparties' total current-account deposits. The overall limit has been broken down into individual limits for the counterparties. The individual current-account limits are determined on the basis of the counterparties' deposits.
 
The basis for the individual current-account limits is 1.75 per cent of all sectors' deposits in kroner with the counterparty. The individual current-account limits are, however, at least kr. 50 million kroner. The size of the deposits is calculated as the average of monthly observations of deposits in the previous year based on the reporting to Danmarks Nationalbank's MFI-statistics.

The determination of current-account limits is evaluated on an annual basis.
 
The purpose of these limits is to prevent the build-up of large deposits that may immediately be used for speculation in interest-rate and exchange-rate changes if the krone is under pressure. In a situation with negative interest rate on certificates of deposit it is crucial that the monetary-policy counterparties' holdings of certificates of deposit are sufficient to ensure the transmission from the rate of interest on certificates of deposit to money-market rates.
 
If the overall limit for all counterparties is exceeded, current-account deposits exceeding the individual limits will be converted into certificates of deposit. See the current-account limits applying at present.

Weekly open market operations

On the last banking day of each week, Danmarks Nationalbank conducts open market operations, in which the counterparties may raise monetary-policy loans against collateral and make deposits by purchasing certificates of deposit issued by Danmarks Nationalbank. Normally, loans and deposits have a maturity of seven days. The loans and deposits accrue interest at the lending rate and the certificates of deposit rate, respectively. Danmarks Nationalbank uses an "open window" in its open market operations. This means that Danmarks Nationalbank fixes the rates of interest, after which the counterparties are free to determine the volume of monetary-policy loans and deposits.

Daily open market operations

On all other banking days than the last of the week Danmarks Nationalbank offers purchase and sale of certificates of deposit. The certificates of deposit matures on the last banking day of the week. In connection with the buy-backs of certificates of deposit, Danmarks Nationalbank adds a premium to the rate of interest on certificates of deposit when calculating the price for the certificates. The premium gives the counterparties an incentive to exchange liquidity in the money market instead of selling the certificates of deposits back to Danmarks Nationalbank.

Liquidity-adjusting operations

In order to support the fixed-exchange-rate policy Danmarks Nationalbank can conduct liquidity-adjusting operations in the money market when and to the extent needed. The operations can be conducted either as deposits at Danmarks Nationalbank, lending against pledging of assets included in Danmarks Nationalbank's collateral basis, or as FX swaps, in which the collateral is foreign exchange. Danmarks Nationalbank allocates or absorbs the krone liquidity by auction or conducts bilateral transactions. The operations can be conducted with all monetary-policy counterparties or with a smaller group of counterparties. Further modalities of any such operations, including maturity and procedure, will be announced.

INTEREST RATES

Interest rates (p.a.)

Current-account rate 0.00 per cent
Certificates of deposit rate -0.65 per cent
Lending rate 0.05 per cent
Discount rate 0.00 per cent

Link to chart data