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.
Renewed global uncertainty and neutral monetary policy
The war in the Middle East has led to market fluctuations and heightened market-based inflation expectations. Market participants expect higher policy rates in the US and the euro area over the next few years than in September 2025 (latest Monetary and financial trends). The krone has gradually weakened against the euro. By the end of February 2026, Danmarks Nationalbank had not intervened since December 2022. The monetary policy yield spread to the euro area remains at -40 basis points, and Danmarks Nationalbank assesses that monetary policy and financial conditions are currently broadly neutral for the Danish economy.
Key messages
Main chart
The policy rate has been kept close to the estimated neutral level
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 monetary policy rate (i*) are based on two different models, which are described in the appendix of 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. Latest data point is February 2025 for the term structure model, Q4 2025 for the semi-structural model and 19 March 2026 for the monetary policy rate.
Source:
LSEG Workspace, Danmarks Nationalbank and own calculations.
Why is it important?
Denmark's fixed exchange rate policy means that monetary policy is designed to ensure a stable exchange rate for the krone against the euro. The fixed exchange rate policy means that, as a general rule, Danmarks Nationalbank follows the ECB's interest rate decisions. The ECB therefore sets the overall level of interest rates in Denmark, while Danmarks Nationalbank sets the monetary policy spread to the euro area to support the krone. Therefore, the monetary policy of 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 are analysed in chapter 1. Global financial developments may also affect the demand for kroner and consequently 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, in conjunction with global financial developments, affects macro-financial conditions in Denmark. These conditions are important for Danmarks Nationalbank’s assessment of current and expected developments in the Danish economy.
The analysis is published twice a year.
