Denmark's central bank today cut its key interest rate by 0.10 points to 0.6% to a fresh 20-year low and the first such move since December as it seeks to boost the economy.
The bank said the rate cut followed purchases of foreign currency, an apparent attempt to reduce the value of the krone, which is linked to the euro.
"The interest rate reduction follows Danmarks Nationalbank's purchase of foreign exchange in the market," the bank said in a statement, providing no further details.
Analyst Jacob Graven at Sydbank said the move was aimed at taking pressure off the Danish krone which has recently tended to strengthen against the euro, making Denmark's exports more expensive in its most important market.
"In line with normal practice, the central bank has now cut the rate to make it a little less attractive to have Danish kroner and therefore to try to weaken the krone against the euro," he said.
"It is however highly doubtful whether the rate cut is enough to prevent the krone from strengthening," he said on the financial daily Boersen's online edition.
The Scandinavian country is a member of the European Union but is not a part of the 17-nation eurozone, where interest rates are set by the European Central Bank (ECB).
Denmark, which has a fixed exchange rate policy with the euro that allows the krone to fluctuate within a 2.25% range, last lowered its key rate by 0.10 points on December 15, a week after it slashed it by 0.40 points.
The global financial crisis upset somewhat the close link between the euro and the krone.
In October 2008, as many countries were lowering their rates to boost their economies, the Danish central bank was forced to increase its key rate to 5.5% to protect its krone, which like the other Scandinavian currencies came under pressure in the turmoil.
Denmark since then had moved closer to the ECB rate, which currently stands at 1%.
The bank also said it was cutting its interest rate on deposits by 0.10 points to 0.2% and on its current account rate to 0.15%, and maintained its discount rate unchanged at 0.75%.
There has been some recent speculation that the ECB, facing a sharp slowdown in the economy, might cut interest rates as parts of efforts to boost growth.
