The National Bank has lowered its interest rates by 0.25 percentage points, mirroring a similar move by the European Central Bank (ECB). This decision, detailed in a press release from the National Bank, sees the key interest rate, specifically the certificate of deposit rate, now set at 1.60 percent, while the lending rate is at 1.75 percent.

The certificate of deposit rate influences the interest earned by mortgage and financial institutions on their certificates of deposit with the National Bank, which subsequently affects the interest rates offered to customers. This marks a significant decrease from the certificate of deposit rate of 3.6 percent observed almost exactly one year prior.

Earlier on Thursday, the ECB reduced its deposit rate by 0.25 percentage points to two percent, marking the eighth interest rate cut within the past year. The National Bank typically aligns its interest rate adjustments with those of the ECB due to the krone’s fixed exchange rate policy with the euro, necessitating similar interest rates to maintain stability.

Economist Jeppe Juul Borre from Arbejdernes Landsbank noted that discrepancies in interest rates could exert pressure on the krone. This interest rate cut is particularly beneficial for homeowners with short interest rate fixing, such as the F-kort loan.

Around 300,000 homeowners with the F-kort loan, which features a six-monthly interest rate adjustment, already experienced a decrease in interest rates of approximately one percentage point at the beginning of the year. A further reduction of around 0.60 percentage points is anticipated for most of these homeowners when the interest rate is fixed again at the end of June, potentially resulting in after-tax savings of up to DKK 400 per month for each million borrowed.

The ECB, along with the National Bank, had previously implemented numerous interest rate hikes in 2022 and 2023 to combat high inflation. Increasing interest rates makes borrowing more expensive, which, in turn, tends to decrease consumer spending and, consequently, inflation.

The ECB’s deposit rate reached a peak of four percent, while the National Bank’s reached 3.6 percent.