“A gift to all Danish homeowners”: ECB lowers interest rates for the eighth time in a year

The ECB’s deposit rate peaked in 2023, when it was four percent. On Thursday, it hit two percent.

Friday marks exactly one year since the European Central Bank (ECB) lowered interest rates for the first time after a long period of skyrocketing inflation.

Since then, there have been seven more interest rate cuts, the latest of which came on Thursday, the ECB said in a press release.

The ECB’s deposit rate was cut by 0.25 percentage points on Thursday, so it now stands at two percent.

The central bank justifies its decision to lower interest rates, among other things, by saying that inflation has reached a level of around two percent.

It is also a development that Allan Sørensen, chief economist at the Confederation of Danish Industry, has noted.

“Declining inflation and worryingly low growth have given the ECB considerable room to maneuver to lower interest rates,” says Allan Sørensen.

“Even though it’s Father’s Day, the interest rate cut is a gift to all Danish homeowners.”

The central bank’s deposit rate peaked in the fall of 2023, when it was four percent.

It reached this point in the wake of an energy crisis, which helped send inflation to its highest level in decades.

In response, central banks can use interest rate hikes to beat back inflation.

When interest rates are raised, it becomes more expensive to borrow money. And all else being equal, this will cause consumption – and thus inflation – to fall.

More interest rate cuts are possible

Frederik Engholm, chief strategist at Nykredit, writes in a comment that a deposit rate of two percent is considered to be a ‘neutral level’.

“This means that interest rates at that level neither slow down nor push growth upwards,” he writes.

Both Nykredit and the Confederation of Danish Industry consider it likely that further interest rate cuts will occur.

Nykredit believes that it can fall to 1.5 percent before the end of the year, and that it could possibly fall even further next year.

If the Nationalbank follows suit with an interest rate cut later Thursday, as expected, it could benefit many Danish homeowners.

Updated

ritzau