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.
Neutral monetary policy in times of global uncertainty
Uncertainty in financial markets increased significantly in April, but has since subsided. The krone exchange rate has been stable, and as of the end of August Danmarks Nationalbank had not intervened for over two and a half years. Danmarks Nationalbank has followed the European Central Bank's (ECB’s) rate cuts of 25 basis points in April and June, respectively. Danmarks Nationalbank assesses that monetary policy and financial conditions in Denmark are neutral for economic activity.
Key messages
Main chart
Danmarks Nationalbank assesses that monetary policy is neutral for economic activity in Denmark
Note:
The chart shows Danmarks Nationalbank's current-account rate (red) and market participants' expectations for €STR minus the current monetary policy interest rate spread between the euro area and Denmark (dashed). The estimates for the neutral policy rate are based on two different models, which are described in the appendix in S.T. Hetland, M.M. Ingholt, R.B. Larsen and M. Spange, Real interest rates in the context of inflation and higher government debt, Danmarks Nationalbank Analysis, no. 2, February 2023. Estimates are subject to considerable uncertainty. The latest data point is August 2025 for the term structure model, Q2 for the semi-structural model and 17 September for the policy rate.
Source:
LSEG Workspace, Danmarks Nationalbank and own calculations.
Why is it important?
The Danish fixed exchange rate policy means that monetary policy is tailored to ensuring a stable krone exchange rate against the euro. The fixed exchange rate policy means that Danmarks Nationalbank generally follows the interest rate decisions of the ECB. Therefore, the monetary policy of the euro area has a bearing on financial and economic developments in Denmark. So does global financial developments, as Denmark is a small open economy closely integrated into the international financial system. Both are analysed in chapter 1. Global financial developments may also affect the demand for kroner and thus Danmarks Nationalbank’s execution of the fixed exchange rate policy. This is one of the elements touched upon in the second chapter. An important element in the third chapter of the analysis is the assessment of how the fixed exchange rate policy, interacting with global financial developments, affects macro-financial conditions in Denmark. They are essential for Danmarks Nationalbank's assessment of current and expected developments in the Danish economy and its recommendations for economic policy in Denmark.
The analysis is published twice a year.
