Denmark boasts the world’s longest history of negative interest rates. However, far from stimulating price growth, the monetary climate has coincided with the longest period of low inflation since the Great Depression, according to Danske Bank AS.
The central bank in Copenhagen, which defends the krone’s peg to the euro, has mostly kept its benchmark deposit rate below zero since mid-2012. Since then, inflation has petered out, with a report on Monday showing Denmark’s consumer prices last month stagnated from the same period last year. Prices for services reached their slowest pace in more than 50 years.
The negative rate environment has brought with it a number of surprises.
Nordea Bank AB Copenhagen-based chief economist Helge Pedersen said it is also worrying that investment has failed to pick up.
“It really tells us that monetary policy hasn’t been that successful,” he said by telephone.
For Denmark, this is set to be the fourth consecutive year with consumer price gains below 1 percent, something not seen since the beginning of the 1930s, Danske economist Las Olsen said.
The Danish economy will only expand 0.6 percent this year, after growing 1 percent last year, Handelsbanken said, adding that growth is likely to be even slower next year, at 0.5 percent.
After a recession in the second half of last year, “the recovery continues to look fragile,” Handelsbanken Copenhagen-based chief economist Jes Asmussen said in a report released yesterday.
Slower growth abroad, a shrinking tailwind for household spending and lackluster investment all mean that growth is not likely to pick up “over the coming years,” he said.
Investors hedging against a sudden price rise, including Denmark’s biggest pension fund ATP, have lost money doing so.
For Denmark’s 2023 inflation-linked bonds bought in the first half of 2014, investors would have lost 10 percent relative to investing in the country’s benchmark 10-year nominal bond.
The phenomenon is global. In Japan, where 10-year bond yields are negative, Bank of Japan Governor Haruhiko Kuroda is signaling policymakers might not achieve their 2 percent inflation target until 2018, despite the prospect of faster economic growth. In the eurozone, European Central Bank President (ECB) Mario Draghi has said inflation is set to reach the target by early 2019, at the latest.
Much of the decline in inflation has come from lower energy prices since 2014. However, an almost 90 percent rebound in Brent crude since January has so far had a limited effect on consumer prices.
The only way to rekindle inflation is to get consumers to expect higher prices in the future and Olsen said the ECB would have little choice other than to delve even further into its stimulus kit.
For now, Denmark’s low inflation has helped boost real wages. However, the general tendency toward continued low prices will ultimately make it difficult for workers to insist on big pay rises when they negotiate new contracts, Olsen said.
DIVIDED VIEWS: Although the Fed agreed on holding rates steady, some officials see no rate cuts for this year, while 10 policymakers foresee two or more cuts There are a lot of unknowns about the outlook for the economy and interest rates, but US Federal Reserve Chair Jerome Powell signaled at least one thing seems certain: Higher prices are coming. Fed policymakers voted unanimously to hold interest rates steady at a range of 4.25 percent to 4.50 percent for a fourth straight meeting on Wednesday, as they await clarity on whether tariffs would leave a one-time or more lasting mark on inflation. Powell said it is still unclear how much of the bill would fall on the shoulders of consumers, but he expects to learn more about tariffs
NOT JUSTIFIED: The bank’s governor said there would only be a rate cut if inflation falls below 1.5% and economic conditions deteriorate, which have not been detected The central bank yesterday kept its key interest rates unchanged for a fifth consecutive quarter, aligning with market expectations, while slightly lowering its inflation outlook amid signs of cooling price pressures. The move came after the US Federal Reserve held rates steady overnight, despite pressure from US President Donald Trump to cut borrowing costs. Central bank board members unanimously voted to maintain the discount rate at 2 percent, the secured loan rate at 2.375 percent and the overnight lending rate at 4.25 percent. “We consider the policy decision appropriate, although it suggests tightening leaning after factoring in slackening inflation and stable GDP growth,”
Greek tourism student Katerina quit within a month of starting work at a five-star hotel in Halkidiki, one of the country’s top destinations, because she said conditions were so dire. Beyond the bad pay, the 22-year-old said that her working and living conditions were “miserable and unacceptable.” Millions holiday in Greece every year, but its vital tourism industry is finding it harder and harder to recruit Greeks to look after them. “I was asked to work in any department of the hotel where there was a need, from service to cleaning,” said Katerina, a tourism and marketing student, who would
i Gasoline and diesel prices at fuel stations are this week to rise NT$0.1 per liter, as tensions in the Middle East pushed crude oil prices higher last week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) said yesterday. International crude oil prices last week rose for the third consecutive week due to an escalating conflict between Israel and Iran, as the market is concerned that the situation in the Middle East might affect crude oil supply, CPC and Formosa said in separate statements. Front-month Brent crude oil futures — the international oil benchmark — rose 3.75 percent to settle at US$77.01
RSS