950803

Danish rate cuts were expected but welcome

COPENHAGEN: Analysts greeted the latest wave of Danish Central Bank key rate cuts as a reflection of the strong crown currency and other positive economic trends, notably inflation, with some foreseeing the possibility of further reductions.

"The cuts were no major surprise, but maybe they came a bit before expected nevertheless," said Frank Fryd Petersen, first vice-president at Bikuben, Denmark's third biggest bank.

"The move is perfectly natural when you consider the strength of the Danish crown currency at below 3.88 to the mark."

"If the crown continues to perform strongly, we might see more rate cuts soon, regardless of how the 1996 state budget (to be unveiled in three weeks) looks," he said.

Other economists pointed to the possibility of another rate cut in connection with the presentation on August 24 of Denmark's draft state budget for 1996.

Denmark's general economic upswing was seen also as a major reason for the cuts, notably the latest inflation figures, which showed June consumer prices falling to 2.1 percent on a year-to-year basis.

Jyske Bank also welcomed the cuts, foreseeing a possible key deposit and discount rate cut to five percent soon.

"The Central Bank has been very cautious up to now with rates, so it's encouraging to see them acting at last to make cuts," Joergen Damgaard, chief analyst Joergen Damgaard at fourth biggest Jyske Bank said.

"The reaction to the cuts should be quiet and the crown stable. There is still room for a key deposit and discount rate cut down to five percent," Damgaard said.

The Central Bank said the strong crown and its current stability against core European currencies was behind its latest rate cuts.

Unibank's information chief Hans Joergen Soees saw the latest key rate cuts as a signal to banks to lower their interest rates.

"One can see that the Central Bank sent two small signals out with its two bouts of rate cuts within the past week. We intend to wait and see how things develop though before following suit with our own rates," Soees told Reuters.

The Danish Central Bank cut discount and key deposit rates to 5.50 percent from 5.75 percent, lowering the 14-day repo rate to 5.90 percent from 6.05 percent with immediate effect.

The repo rate was last cut on July 27 and the discount rate on July 6.

Bonds and the crown reacted positively to the move.-Reuter