Analyses focus on current issues of particular relevance to Danmarks Nationalbank’s objectives. The analyses may also contain Danmarks Nationalbank’s recommendations. They include our projections for the Danish economy and our assessment of financial stability. Analyses are targeted at people with a broad interest in economic and financial matters.
Towards a neutral monetary policy in 2025
Danmarks Nationalbank followed the European Central Bank’s, ECB’s, four interest rate cuts of 1 percentage point in total since the October meeting. Thus, the monetary policy rate spread to the euro area remains unchanged. It is the assessment of Danmarks Nationalbank that monetary policy and overall financial conditions in Denmark will be neutral for economic activity in 2025.
Key messages
Main chart
Monetary policy is expected to have a neutral effect on economic activity in Denmark in 2025
Note:
The chart shows the accumulated effects of ECB interest rate changes since 2022 on Danish GDP relative to the structural level, according to Danmarks Nationalbank's DSGE model. The chart contributes to the overall assessment of the activity impact of monetary policy and general financial conditions in Denmark. Several indicators are included in this assessment. The white markings are mean estimates, while the red areas indicate 90 per cent confidence bands based on parameter uncertainty.
Source:
Own calculations.
Why is it important?
The Danish fixed exchange rate policy means that monetary policy is tailored to ensuring a stable krone exchange rate against the euro. The fixed exchange rate policy means that Danmarks Nationalbank generally follows the interest rate decisions of the ECB. Therefore, the monetary policy of the euro area has a bearing on financial and economic developments in Denmark. So does global financial developments, as Denmark is a small open economy closely integrated into the international financial system. Both are analysed in chapter 1. Global financial developments may also affect the demand for kroner and thus Danmarks Nationalbank’s execution of the fixed exchange rate policy. This is one of the elements touched upon in the second chapter. An important element in the third chapter of the analysis is the assessment of how the fixed exchange rate policy, interacting with global financial developments, affects macro-financial conditions in Denmark. These conditions are important for Danmarks Nationalbank’s assessment of current and expected developments in the Danish economy.
The analysis is published twice a year.
