Analyses focus on current issues of particular relevance to Danmarks Nationalbank’s objectives. The analyses may also contain Danmarks Nationalbank’s recommendations. They include our projections for the Danish economy and our assessment of financial stability. Analyses are targeted at people with a broad interest in economic and financial matters.
Monetary policy is tight and dampens inflation
Danmarks Nationalbank’s monetary policy interest rates have remained unchanged since September 2023. The significant monetary policy interest rate hikes since 2022 continue to impact the Danish economy. Most of the pass-through to Danish households and companies’ interest expenses has now taken place. Monetary policy is considered to be tight and contributes to a dampening of economic growth and inflation in Denmark.
Key messages
Main chart
Household interest expenses have roughly doubled since the monetary tightening began
Note:
Quarterly interest expenses before tax on bank and mortgage debt for Danish households and non-profit institutions serving households. The projection of interest expenses is based on implicit market expectations for the loan segments “F-kort” (short-term adjustable rate mortgage loans), F1, F3, F5 (adjustable rate mortgage loans with interest fixation periods of 1, 3 and 5 years, respectively) and fixed-rate loans. The pass-through to bank loans is assumed to be 60 per cent of the change in the rate on “F-kort”, and a constant turnover of 5 per cent is assumed for fixed-rate loans in each quarter. It is also assumed that the loan composition is constant during the projection period, corresponding to the composition in December 2023, and therefore repayments and credit growth are disregarded. For more details, see the explanation around chart 26 in the chapter on Macro-financial developments.
Source:
Danmarks Nationalbank, Refinitiv Eikon and own calculations.
Why is this important?
The Danish fixed exchange rate policy creates a framework for low inflation in Denmark in the medium term. The fixed exchange rate policy means that monetary policy is designed to ensure a stable exchange rate against the euro. The fixed exchange rate policy means that Danmarks Nationalbank generally follows the interest rate decisions of the European Central Bank, the ECB. Therefore, monetary policy in the euro area has a bearing on financial and economic developments in Denmark. So do global financial developments, as Denmark is a small open economy closely integrated into the international financial system. Both factors are analysed in chapter 1. Global financial developments may also affect the demand for kroner and thus Danmarks Nationalbank’s conduct of the fixed exchange rate policy. This is one of the elements touched upon in chapter 2. An important element in chapter 3 of the analysis is the assessment of how the fixed exchange rate policy, interacting with global financial developments, affects macro-financial conditions in Denmark. These conditions are important for Danmarks Nationalbank’s assessment of the current and expected development in the Danish economy.
The analysis is published twice a year in March and September.
The analysis consists of a Danish and an English version. In case of doubt as to the correctness of the translation, the Danish version will prevail.
Editing completed on 15 March 2024